Insurance Policies may not Give High Returns

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Policy holders, who were pampered with high returns, may get only 4% returns this time

It is time when insurers are trying to adjust to the new normal ­­ cut promised returns on insurance policies. Policy holders who were pampered with high returns a few years ago, now stare at the prospect of not more than 4% returns, which could mean savings moving away to mutual funds. Insurers offer guaranteed returns on some policies and most of the policies are now promising a return of about 7% to 7.5%.Alhough rates have been falling, they had not filed with the regulator to lower the return to 4.5% on guaranteed return products.

The Insurance Regulatory and Development Authority said that fall in interest rates is sharper and they are getting feedback from in dustry players that their existing products are becoming unviable.

"The prevailing G-sec rates are in falling mode," said Irda in draf guidelines on product approvals with minor modifications. "We are receiving product filings from the insurer having either multiple premium rates or having maturity benefits linked with the movement in the interest rate."

The benchmark G-sec has fallen to 6.4% after the monetary policy review and is down more than 1.5 percentage points in the past year. HSBC expects the 10-year G-Sec to tumble to 6% by March 2017.

Irda has allowed companies to reprice products once a year, if the repricing is because of falling yields. "There is a need to examine and propose a different method so that products are available which are consistent with the prevalent G-Sec rates," said Irda.

Usually , refiling of the product due to change in interest rate is under the file and use system. For non-linked products such as money back or endowment, interest rate assumption is very important. The interest rate assumption while deciding about the pricing interest rate is benchmarked with the 10-year G-Sec. Premium and benefits that are offered de pends on this rate. We have to reset rates, there is no option unless some company priced ex pecting rates to fall to this level

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