LIFE INSURERS GEARING UP TO MEET DEADLINE FOR CAP ON ULIP CHARGES
Remya Nair, Mumbai
The Hindu Business Line

Life insurance companies are gearing up to meet the Insurance Regulatory Development Authority (IRDA) deadline for the implementation of cap on ULIP (unit-linked insurance policies) charges and have started talks with distributors regarding commission structures. They are also in the process of revising the existing product structures.

While the IRDA cap on charges will result in customers getting more returns from their policies, it may lead to insurance agents having to settle for lesser commission, as companies try to minimise their losses.

While some insurers are asking their distributors to share the burden of lower charges, others are trying to minimise the pressure on distributor commission by trying to internally reduce costs.

The October 1 deadline is only for new products while for the existing products, the deadline is December 31.

IRDA had capped ULIP charges, with the exclusion of mortality and morbidity charges, at 300 basis points for products with a tenor of 10 years or less and at 225 basis points for products with tenors of more than 10 years. It had also capped the fund management charges at 135 basis points irrespective of the tenor.

IRDA's new regulation will affect insurance companies' present system and their understanding with their corporate agent, said Kamalji Sahay, Chief Executive Officer, Star Union Dai-ichi Life Insurance.

"Everybody has to adjust to the new regulation. We expect some sacrifice on the part of the corporate agents. We will also lose some income. We have informed our corporate agents that since the regulator does not permit costs beyond a certain limit, the commission will have to be lowered. We will also have to tighten our belts as we have to live with lower returns and administrative charges," Sahay said.

Star Union Dai-ichi has its parents ” Union Bank of India and Bank of India ” as its corporate agents.

V. Srinivasan, Chief Financial Officer, Bharti AXA Life Insurance, admitted that there could be a marginal drop in distributor commissions, post October 1.

"We are trying to make internal adjustments such as cutting costs rather than lowering distributor commission," he said. Bharti AXA has a tie-up with NBFCs such as Citi Financial to sell its products