Life Insurers in Pre-Deadline Rush to Meet New Surrender Value Rules

14 Aug 2024 , 12:37 PM

Life insurers are pushing sales before the start of the new regime.

Life insurers, seeking a three-month extension from the insurance regulator to comply with new surrender value requirements, are actively pushing products to lock in consumers ahead of the new regime’s October 1 start date.

The new standards are expected to put pressure on profits and modify commission systems, prompting businesses such as HDFC Life and Max Life to accelerate sales that were up 40-50% in July ahead of the deadline.

According to insurers, yields on non-participating products are expected to fall by about 25 basis points under the new rules, which require insurers to offer guaranteed surrender value on non-participating products beginning in the first year. One basis point equals one tenth of a percentage point.

There is an expectation that the yield on new products will fall by 20-25 basis points, and commission structures may change, such as connecting incentives to persistence or spreading payments over time rather than upfront.

The regulator has mandated an improved Special Surrender Value (SSV) in which the surrender value is due first in the first year, even if the policy is relinquished after paying the first year premium. In addition, the discount rate for discounting the paid-up value to compute SSV might be up to 50 basis points higher than the 10-year Gsec yield. Insurers can continue to market old products until September 30, 2024, after which they must sell products that conform with the updated norms.

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