The Insurance Regulatory and Development Authority (Irdai) of India is exploring the possibility of indexing annuity rates to government securities or the inflation rate so that they reflect the cost of living of consumers. Essentially, there may be a change to floating rates for annuity products from the fixed rate regime, which generally gives lower returns to customers.
Subash Chandar Khuntia, Irdai chairman, said, “We are actively looking into this because we feel if the annuity rate is indexed to something which reflects the cost of living, it will be good for both the insurers and the policyholders”.
“So, we are exploring the possibility of indexing the annuity rates with Gsec or inflation rate”, Khuntia said.
A group has been constituted to look into this issue and once they submit the report, the regulator will think of introducing such a system but it needs to be explained to the customers so that the norm for having a fixed rate forever can be changed.
Annuity plans enable customers to receive payments regularly for a lifetime after investing a lump sum. The insurance industry has seen a huge surge in demand for annuity products due to increasing life expectancy and rapidly declining interest rates. Experts have said, the recent fall in bank interest rates has made annuity products more attractive and the demand for such products will continue to soar in the coming years with a huge section of the Indian population working for the unorganized sector where there is no pension provision.
Meanwhile, the regulator has recently launched a standard individual immediate annuity product “Saral Pension” which all life insurers have to start offering to consumers by April 1, 2021.
The regulator has also introduced a host of standard products in the past few months starting from standard health product, covid product, term product, and others. It is also planning to introduce a few other standard products also as these products make it easier for the customer to adopt insurance policies.
Speaking at the annual summit of the Insurance Brokers Association of India (IBAI), Khuntia said, around 4.2 million lives have been protected uder Corona Kavach policy and approximately 536,000 lives have been covered under Corona Rakshak. These were the two standard covid products the regulator had launched in June 2020 as the pandemic necessitated the introduction of these products because they were cheaper than the comprehensive health policies.
Overall around 12.8 million lives have been covered under all the covid specific products in the market with a premium of more than Rs 1,000 crore and a total sum insured is more than Rs 12 trillion.
Furthermore, the chairman has said, the insurance companies have been asked to have agreements with network providers (hospitals) on the cost of disposables and covid treatment. In the initial days of the pandemic the health insurance industry saw costs rising due to disposables as there was no standard cost of such products and ultimately the customers had to bear the cost. But he emphasized that it was a one time phenomenon and the costs have come down.
“As we go forward, we would like to develop such agreements between the health providers and the insurers so that there is some certainty and policyholders are not asked to pay anything extra. Now, things are under control and we are keeping a watch on the situation”, he said.
Addressing the insurance brokers, the chairman urged them to persuade MSME units to go for group health insurance policies and group life insurance policies for all their employees and workers. This, he said, will help as many as 11 crore people. The employers can afford it and pay the premium because in group insurance the premium per person will not be very high. Also, annuity products as well as simple pension products can be sold to these employees.
“We must now move from supply driven products to innovative products that are need based and the brokers can create a bridge between the insurers and the insureds to develop these products”, he added.
So far, the insurance industry has 482 brokers and they contribute 26 per cent to the general insurance business. While brokers contribution in health business is 23 per cent, with 36 per cent contribution in group health.