NEW DELHI: Insurance sector regulator Insurance Regulatory and Development Authority of India (IRDAI) has announced that it has formed a working group to examine the various aspects of index-linked insurance products (ILIPs) and whether they may be offered by life insurers.
Such plans are not new to the sector, since they were only banned in 2013. This was due to the fact that insurers had taken a too aggressive strategy in selling the policies, which saw much traction before being stopped in 2013.
Now, however, with markets more mature, the regulator has received requests from life insurers to consider reintroducing them, a possibility which the committee will examine. It will look into whether there is a need for such index-linked products and how they will serve the needs and interests of customers compared with traditional savings insurance products.
But, what are ILIPs? Before being banned, these plans invested policyholders’ money into indices linked to instruments such as government securities or bonds. Earlier, the plans had a minimum guarantee and were considered low-risk investments. The committee will examine such index-linked products from the past in terms of product structure, customer understanding, administrative processes and sales, among other features.
The IRDAI had also considered the scheme to put investment risk being borne by customers, while insurers positioned them as traditional savings plans. However, the IRDAI’s committee this time will give recommendations on features such as product structure and pricing along with suggestions on possible amendments to current regulations on investment-linked products. Earlier, these plans had operated like a bank account, where each policyholder had a separate managed account, according to Rakesh Goyal of Probus Insurance.