Chennai: The Insurance Regulatory and Development Authority (IRDA) has rung in the New Year with a move cheer policy holders.

Henceforth all life insurers will have to compulsorily spell out clearly under individual heads the charges / loads they collect from a policyholder and the amount available towards investment under unit-linked life insurance policies (ULIP) every year.

Insurance companies have also been told to specify clearly the guaranteed returns and the non-guaranteed returns to their policyholders under each policy.

The new rule comes into effect from 1 February 2008.

The highlight of the regulator's New Year's move is that information that insurers provide should be specific to the concerned policyholder and not of a generic nature.

• The two statements:
  Statement of charges, amount available for investment and
  
• Table showing guaranteed and non guaranteed returns at 6 and 10 per cent - are to be signed by the policyholder as well as the agent.

Only then will the statements form part of the policy document.

Says Dr R Kannan, member (actuarial), "The latest move is to bring in standardisation in disclosure norms for the benefit of the policyholders. This will enable policyholders to compare clearly not only the features of competing products but also the charges to make an informed decision."

The signing of the two statements by the policyholder and the agent and making them part of the policy will also enable life insurers to avoid complaints of being misled by policyholders.

Terming IRDA's move as "radical measure in the interests of policyholders" an industry executive says, "At present some companies disclose the charges, while others do. For instance some life insurers specify the fund management charges and some don't. IRDA's move compels the life insurers to come out clean."

However, not all private life insurers are in favour of such a move. When the issue was discussed at the Life Insurance Council of India, many of them termed IRDA's proposal as impractical.

However, when asked to view their actions from a policyholder's perspective, they had no answer.

Observers say that the government-owned Life Insurance Corporation of India (LIC) may find it difficult to implement the new regulation as it has around 10 lakh agents and thousands of branches.

Responds G N Agarwal, executive director (actuarial) at LIC, "There is no problem for us in complying with the new regulation. We have fine tuned our information technology (IT) systems now."

On the positive side the IRDA's new move gives LIC's agents a good competitive advantage.

Not many know that LIC's ULIP charges are the lowest in the industry. The insurer's agents can now highlight this aspect clearly giving comparisons in their prospects.

On the advisability of ULIPs, which charge the entire first year premium towards commissions that enable insurance companies to pay more than the stipulated commission to the distributors, Kannan remarks, "We will not micro manage how and what products a company should sell. We look at the sustainability and the stability of a product's pricing / cost structure. We are more concerned about the disclosure norms."

"The choice of the products depends on the risk appetite of the individual policyholder," he adds.

Though concerned about life insurers pushing ULIPs and the resultant risks when the stock market goes down, Kannan rules out any regulatory linkage of ULIPs to the minimum sales of traditional insurance products.