Life insurance stocks like HDFC Life Insurance Company Ltd and Max Financial Services Ltd rose up to 7% intraday on Tuesday (March 26) following IRDAI's (Insurance Regulatory and Development Authority of India) notification on the final regulations in relation to surrender value.
At 10:37 am, Max Financial shares were trading higher by 4.42% at ₹985.75, while HDFC Life shares rose 1.36% to ₹632.35 apiece on the NSE.
IRDAI's final guidelines, which will be effective April 1, 2024, state that the surrender values for life insurance policies are expected to largely remain the same or even lower if policies are surrendered up to a period of within three years. For life insurance policies surrendered from the fourth to the seventh year, surrender value may see a minor increase.
IRDAI says if an individual holds on to the policy for a higher duration, the surrender value will be higher and vice versa.
This development comes after consideration of concerns raised by life insurers.
Surrender value is the total payout that an insurance company gives the policyholder on the occasion of policy termination ahead of its maturity. Therefore, this will only apply to those policies that have a surrender benefit.
The IRDAI's December 2023 proposal, which served as the foundation for these regulations, initially suggested the introduction of threshold premiums and higher surrender values for endowment policies.
Over the past few months, the IRDAI has been focussing on reforms to boost its vision of achieving ‘Insurance for All by 2047’.
Last year on October 30, the sector regulator issued a circular directing insurance companies on the Customer Information Sheet (CIS) implementation, which aims to improve communication and transparency between insurers and policyholders. The CIS have the basic features of the policy in easily comprehensible words.
In an interaction with CNBC-TV18, Tarun Chugh of Bajaj Allianz Life said that IRDAI has taken a good balanced approach on surrender value. "Impact on life insurers won’t be much because of final surrender value regulations," he said.
Chugh also stated that the biggest losers in case of higher surrender value would have been customers.
According to Emkay Global, this 'status quo' in surrender values comes as a big relief for life insurers. However, the domestic brokerage believes that competitive forces in the savings and investment market, and the changing customer preferences, will drive life insurers to offer cost-efficient products.
"Backed by favorable demography-led structural growth story and attractive valuations, we maintain our positive view on life insurers," it said while suggesting ICICI Prudential Life Insurance Company, Max Financial, and SBI Life among its preference.
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