IRDAI wants insurers to weed out low-selling products after annual reviews

The Insurance Regulatory and Development Authority of India (IRDAI) has asked insurance company CEOs to review their products annually and weed out poor-selling policies.

The idea is to encourage insurers to have products with a high rate of sale, Subhash Khuntia, Chairman, Insurance Regulatory and Development Authority of India (IRDAI), said.

“I would like to encourage insurance companies to weed out products that are not selling and are simply adding to the number. If they do this, they will be able to manage their portfolio well,” he added. The regulator conveyed the message in a recent meeting with CEOs of insurance companies.

A cap in terms of the number of products a company can have was not specified. However, data shows that insurers typically have only four to five popular products on average. The rest merely exist. From the overall list, insurers may now do away with the worst-selling products following a comprehensive review at the end of every fiscal year.

India’s life and general insurance companies put together sell more than 1,500 products. To be sure, there are also niche products that may not sell too much but serve a need in the market. Such products, say a cancer cover, would still be made available even if they have low traction, says the chief executive of a mid-sized bank-led insurer. "Through our actuary, we would be able to explain to the regulator why some products are still being sold," he said. He added that companies would choose products that are the lowermost in the sales portfolio and do not add any significant value to the industry.

Having a slew of products leads to additional costs for insurance companies in the form of requisite IT infrastructure and the need for record keeping. Existing rules state that insurance companies can only file up to five products a year. IRDAI has said if the number of products exceeded five, the insurer should furnish supporting market research, product-wise persistency for the 13th month, 25th month and 37th month as on April 30 of the previous year.

At present, the insurance regulator follows the file-and-use method of application, wherein insurers apply to obtain prior approval of the authority to introduce/modify insurance products.

According to estimates, insurance companies could save up to 30 percent of annual costs if they restrict the number of products being sold in the market. It is likely that policyholders will be given adequate notice before the policy withdrawal from the market.

Source: Money Control