BS Reporter / Mumbai
In a move aimed at making term insurance products cheaper and popular among customers, the Insurance Regulatory Development Authority of India (IRDA) has decided to reduce the solvency margin on these products under traditional business.
Term insurance policies provide pure life cover with no maturity or survival benefits. Since there are no maturity benefits in these policies, they are not as popular as, say, the money back covers.
Currently, insurers have to maintain a solvency margin of 150 per cent on insurance products. The move will ease the capital requirement by one third for term policies for both individual and group policies. Solvency margin requirements are the prudential norms on capital requirement for insurance companies. They are the equivalent of capital adequacy ratios for the banking industry. Insurers are likely to pass on the benefit to customers.
"With the IRDA reducing the solvency margin on term products, the premium for these policies is likely to come down by 5% to 10%," said GN Agarwal, executive director and appointed actuary of Life Insurance Corporation of
For example, if a person is, say, 35 years old and buys a term insurance policy which has a sum assured of Rs 1 lakh, the premium would work out to around Rs 250 a year. However, the insurer had to provide a solvency capital of Rs 450. With the IRDA reducing the solvency margin to one-third, the solvency margin required to be maintained henceforth will be reduced to Rs 300.
“The proposed required solvency margin at lower level for pure term products would provide significant relief to life insurers both under individual products and under group products. This measure, it is hoped, would pave the way for enhancing the interest among insurers to launch pure term products for a sufficiently long period and at affordable rates, which would ultimately result in increased insurance coverage," said R Kanan, member actuary of IRDA.
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