Tuesday, March 30, 2010

Update on ULIPs in India

India: Returns increase on unit-linked plans
The Indian insurance regulator's revised cap on management expenses has pushed up returns on unit - linked insurance products (Ulips) by about one percentage point, reports the media. The ceiling has also forced insurance companies to launch new policies which conform to the lower ceiling on management expenses.

The Insurance Regulatory and Development Authority (IRDA) requires insurers to cap the difference between the gross and net returns on Ulips to a maximum of 2.25-3.00 percentage points. This would lead the net yield for investors in Ulips to increase by at least 1-1.5 percentage points on an annual basis.

For instance, one insurer deducted between 3.4 and 3.7 percentage points every year from the gross yield on some of its Ulips, towards expenses such as fund management and other charges. But this has fallen to 2.5-2.7 percentage points for new products.

To increase the overall return, several insurers have also trimmed agent commissions and marketing costs and put in other cost controls. The new norms have also led the industry to withdraw and re-launch almost the entire set of products already in the market. Insurers say that they opted to discontinue less popular products and re-launched only those which could be modified.

For policyholders of old products, some insurers offer the option of switching over to a new scheme without any additional charges. Others do not offer any option because the initial charges have already been paid.

Ranjan Varma

Posted via email from Ranjan's posterous

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