Hyderabad:
Recommending Index Linked Insurance Products (ILIP) in the Indian life insurance market, a working group(WG), constituted by the insurance regulator IRDAI, has said ILIPs could be an apt alternative or complimentary option to the current conventional guaranteed products (including annuities and savings products) and ULIPs(Unit Linked Insurance Products), particularly in the context of volatile investment markets /stressed interest rates.
There is a need exists to have ILIP which would not only give more options and alternatives to the policyholders to choose from, but also could help the insurers to manage their asset liability management risks in a better way, said the panel.
While recommending the ILIP, the WG followed the key principles of transparency, simplicity, fairness, awareness and liquidity of Indices.
The WG also acknowledged that ILIP in certain forms and shapes can bring about more complexity at the back end and hence decided to recommend different variants of a product structure wherever possible, starting from the ones which are simple (linked to fixed/G-Sec income linked indices) to more complicated structures.
The WG has the view that there is relevance for ILIP which could be seen as a category which fits in between traditional products where features can appear less transparent and the unit linked products (ULIP) where transparency is higher but the investment risks are completely borne by the policyholders.
it is proposed that ILIP are required to have non-zero positive minimum benefit addition in reference to the premiums or to the sum assured as applicable, the level of which can be left to the insurers to decide.
Further,unlike in ULIP, the actual investments can be different from the composition of the specified index, depending on the risk appetite of the individual insurer
Annuities need a special mention in light of some projections which estimate that nearly 20 percent of the Indian population will be senior citizens by the year 2050.
The WG deliberated various options especially related to annuities and the need for inflation linked annuity payments taking cognizance of the challenges in finding matching assets for these liabilities, primarily the lack of index linked bonds in the Indian market.
The WG believes customer disclosures are extremely important for ILIP and the disclosures have to be proportional to the complexity of the product designs. However, a balance has still to be ensured between amount of information and its utility..