Life insurers may soon launch index-based insurance products

A 'participating policy' enables the policyholder to share the profits of the insurance company. These profits are shared in the form of bonuses or dividends. ULIPs which pay bonuses or dividends to the policyholder are an example of a participating policy. In a non-participating policy, the profits of the insurance company are not shared and no dividends or bonuses are paid. A term insurance policy can be classified under a non-participating policy.

The 6-member working group constituted by IRDAI will be headed by Dinesh Pant, Appointed Actuary for LIC. Other members of the working group include:

1)Anil Kumar Singh, Appointed Actuary, Aditya Birla Sun Life Insurance

2)Jose C John, Appointed Actuary, Max Life Insurance

3)Manish Kumar, CIO, ICICI Pru Life Insurance

4)Y Srinivasa Rao, DGM, Investment Department, IRDAI

5)DNK LNK Chakravarthi, AGM, Actuarial Department, IRDAI

Experts say that linked insurance products can be benchmarked to the 10-year government bonds or equity indices such as Sensex or Nifty. While those linked to government bonds are less risky, those linked to equity-based indices would have fluctuations in returns, based on stock market performance

The group will be tasked with the responsibility of examining the need for index-linked products in India especially with the availability of various indices and how it will better serve the needs and interests of customers relative to traditional savings products.

The group will also examine the index-linked products, which were earlier available for sale in the Indian market in terms of product structure, ease of customer understanding and administrative processes, sales volumes and any other matter of relevance.

The working group will also study practices of other jurisdictions in respect of index-linked product structure and their operations in order to provide recommendations on specific aspects like product structure, its pricing and also suggestions on possible amendments, if any, to Product and Investment Regulations.

IRDAI has asked the working group to submit its report within two months.