IRDA bans highest NAV guaranteed products

According to IRDA, to maintain the NAV consistently in case of highest NAV guaranteed products, insurers take risk of investing in stocks aggressively. This may lead to unwanted risks

May 14, 2012 1:59 IST | India Infoline News Service

The Insurance Regulatory and Development Authority (IRDA) has asked life insurers to stop selling highest net asset value (NAV) guaranteed products.

According to the regulator, the marketing of highest NAV guaranteed products shall not be allowed. These products contribute almost 20% to the total premium collection of life insurers. Highest NAV products promise to pay the highest value the fund achieves during a certain period—for example: five or seven years. However, to maintain that NAV consistently, insurers take risk of investing in stocks aggressively. This may lead to unwanted risks.

The regulator has also mandated a minimum death benefit of at least 10 times of the annualised premiums in case of traditional products, as there were some products offering a limited death benefit.

Vibha Padalkar, chief financial officer, HDFC Life, said, “The regulator has put a ban on the name ‘highest NAV guaranteed’ products and we are also refiling our products with a new name.”

Speaking about the deferment in modifications to the Insurance Amendment Bill, she said that insurance industry is a capital intensive sector. And if the FDI (foreign direct investment) is increased to49% it would help domestic companies get more capital. Also, lots of Indian companies have breakeven recently so it is essential that more FDI should be pumped in.If the FDI is limited to 26%, then this may affect the growth of industry. Also many Indian promoters have exited the business due to lack of capital and the sector is experiencing slowdown.”

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