Benefit Illustration and Market Conduct Standards for Life Insurers

भारतीय बीमा विनियामक और विकास प्राधिकरण INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

Circular No: IRDAI/LIFE/CIR/ 173 /09/2019 Misc

Date: 26/09/2019

To Chief Executive Officers of all Life Insurers

Reg: Circular on (a) Benefit Illustration; and (b) other market conduct aspects

1. Reference is drawn to the provisions under Regulation 38 (b) of IRDAI (Non-Linked Insurance Products) Regulations, 2019, Regulation 31(e) and 51 (b) of IRDAI (Unit Linked Insurance Products) Regulations, 2019. Considering that life insurance is essentially a long term financial instrument, a fair and transparent sales process with meaningful, timely and relevant disclosures, is very important to ensure good customer outcomes and protecting the interests of insuring public. Therefore, the following directions are issued under the powers of Section 34(1) of Insurance Act, 1938 for compliance by all Life Insurers. The provisions of this Circular are applicable to products of Life Insurers filed as new products or for modification under the above cited regulations in accordance with circular reference IRDAI/ACT/CIR/MISC/124/07/2019 dated 26/07/2019 and IRDAI/ACT/CIR/MISC/125/07/2019 dated 26/07/2019 with immediate effect. However, the directions 2, 3, 4.5, 7, 8, 9 and 10 shall be complied with in respect of all other products, w.e.f. December 1st, 2019.

2. Benefit Illustration:

• 2.1. Every Insurer carrying on life insurance business shall provide customised benefit illustrations to proposers or policyholders at the point of sale for all products, except those issued under IRDAI (Micro Insurance) Regulations, 2015, Guidelines on Point of Sales (POS) - Life Insurance Products, 2016 and IRDAI (Insurance services by Common Service Centres) Regulations, 2019 as amended from time to time.
• 2.2. Such benefit illustration shall be signed by the prospective policyholder as well as the insurance agent or authorized person of intermediary or the Insurer involved in sales process, as the case may be and shall form part of the policy document.
• 2.3. All illustrations shall be approved by the Appointed Actuary and the Chief Executive Officer / Principal Officer. Further, the Benefit Illustrations shall also be placed before the Board of Directors for information. Any illustration which becomes misleading following any material change of circumstances shall be discontinued forthwith.
• 2.4. The benefit illustrations shall be as per the format prescribed herein:
  • 2.4.1. Annexure 1: BI for Unit-Linked Life Products
  • 2.4.2. Annexure 2: BI for Unit-Linked Pension Products
  • 2.4.3. Annexure 3: Annual Disclosure in respect of pension products
  • 2.4.4. Annexure 4: BI for Non-Linked Participating Life Products
  • 2.4.5. Annexure 5: BI for Non-Linked Participating Pension Products
  • 2.4.6. Annexure 6: BI for Non-Linked Non-Participating Life Products
  • 2.4.7. Annexure 7: BI for Non-Linked Non-Participating Pension Products.
• 2.5. Further, the calculation of net yield for Unit-Linked products is illustrated vide Annexure 8 for the information of Insurers.
• 2.6. The illustrations shall be clear and fair to enable a customer to make an informed decision. They shall clearly distinguish between guaranteed and non-guaranteed benefits and state that the quantum of benefits in respect of non-guaranteed category may vary.
• 2.7. Insurers shall review the assumptions used in the benefit illustrations (BI) during the annual actuarial valuation and revise the BI wherever required. The Insurers shall file the revised BI with the Authority within a period of fifteen days from the date of such revision.
• 2.8. To enable the prospects better appreciate the possible benefits depending on the yield, illustrations must be with both the scenarios prescribed in the IRDAI (Non-Linked Insurance Products) Regulations, 2019 and IRDAI (Unit Linked Insurance Products) Regulations, 2019, with equal prominence, in same font size, at the same place and same page.
• 2.9. The following phrase must appear on the front page of illustrations in the same font size as the rest of the text:

"Some benefits are guaranteed and some benefits are variable with returns based on the future performance of your insurer carrying on life insurance business. If your policy offers guaranteed benefits then these will be clearly marked "guaranteed" in the illustration table on this page. If your policy offers variable benefits then the illustrations on this page will show two different rates of assumed future investment returns. These assumed rates of return are not guaranteed and they are not the upper or lower limits of what you might get back, as the value of your policy is dependent on a number of factors including actual future investment performance."

• 2.10. In case of on line sale:
  • 2.10.1. The customized Benefit Illustration shall necessarily be generated in the prescribed format before the prospect is directed to fill up application form and pay premium. It shall be ensured that all the terms and conditions, declarations, notes or disclosures are displayed on the main screen. No terms and conditions, declarations, notes or disclosures should be made available through an option of clicking a hyperlink.
  • 2.10.2. Specific and separate confirmation for Benefit Illustration shall be obtained from the proposer about understanding the benefits illustrated. There shall be provision for saving and generating a printout of the final customised Benefit Illustration by the proposer. The final customised Benefit Illustration shall be emailed to the registered email ID of the proposer immediately after his or her online submission of the proposal form and before payment of proposal deposit.

Market Conduct Aspects:

3. Periodic Statement:

Every insurer carrying on life insurance business shall:

• 3.1. endeavour to verify the contact information including email id, mobile number, etc., and bank account details of their policyholders at least at annual intervals and update changes, if any; and
• 3.2. send to all policyholders, at least at annual intervals, a status report of their policies, disclosing the premium payment status, accrued bonus and other benefits, paid-up value, and other relevant information. In case of unit linked policies, it shall at minimum contain number of units to the credit of policyholder, fund value at the NAV rate applicable and changes in the units from the last issued status report.

4. Financial Planning for Pension Products:

For the purpose of financial planning, any pension product offered by the insurer shall also necessarily disclose:

• 4.1. An illustrative target purchase price for each policyholder considering the premium payment capacity, age, vesting age and the future expected conditions.
• 4.2. Possible risks involved, if any, including the targeted pension rate in meeting the targeted purchase price.
• 4.3. Possible risks involved, if any, in purchasing the targeted pension rate or annuity rate.
• 4.4. An illustrative target annuity or pension rates for the illustrative target purchase price.
• 4.5. A yearly disclosure shall be sent to each policyholder in Annexure 3 on $1^{\text{st}}$ April, indicating:
  • 4.5.1. The current accumulated / available amount;
  • 4.5.2. The expected accumulated value on the date of vesting on the basis of gross investment returns as stipulated by the Authority from time to time, with the caveat, that the projected rates shall not reflect any guarantee. Currently the gross investment returns are 4% p.a. and 8% p.a.
  • 4.5.3. Likely annuity amounts based on the then prevailing annuity rates, with the caveat, that the projected rates shall not reflect any guarantee.

5. Splitting of Policies:

• 5.1. Splitting of policies shall not result into any increase, directly or indirectly to the policyholder by way of fees or charges in whatsoever name at any time during the term of the policies and not just at the inception.
• 5.2. A policy will be deemed to be split, if multiple policies of the same nature are sold to a prospect at the same time.

6. Training of Agents and Intermediaries in respect of Unit Linked Insurance Products:

• 6.1. All Life Insurers shall impart periodical training to their agents and intermediaries before they are authorized to sell unit linked insurance products to ensure required expertise. A statement indicating the number of agents trained shall be furnished to the Authority annually.
• 6.2. The curriculum for this training should inter alia contain:
  • 6.2.1. The developments of the capital market,
  • 6.2.2. The basic knowledge of concept and working of the Unit Linked Insurance Products, the suitable market segments, need to limit the illustration of benefits/yields strictly to the permitted two scenarios of 4% p.a. and 8% p.a. with all required disclaimers
  • 6.2.3. Risks in investing in Unit Linked Insurance Products in general and with reference to different funds, it is the duty of the Agent/Intermediary to apprise the prospect about such risks.
  • 6.2.4. The developments in other similar type of financial products, the concept of equity market, debt market and the overall economic scenario as affecting the capital market in general and the features of the unit linked products.
  • 6.2.5. This shall be a separate training in addition to the mandatory hours training applicable to agents / intermediaries to become eligible for registration. The training shall be on a continuous basis.
• 6.3. Every life insurer shall maintain a register of such persons (agent/intermediaries), who have undergone this specific training.

7. Suitability

• 7.1. Except in respect of pure risk and pure health products, the Life Insurer or agent or intermediary, as the case may be, shall collect suitability information of every prospect and make recommendations on purchase of life insurance product only basis such information and enclose it to the proposal. Such document shall contain signatures of the prospect and of the person involved in the solicitation of the business.
  • 7.1.1. 'Suitability information' is the information of a prospect on age, income, family status, life stage, financial and family goals, investment objectives, insurance portfolio already held, etc.
  • 7.1.2. 'Suitability' means a determination, based on information collected at the time of sale or solicitation in a format that, based upon a particular prospect's risk profile, financial situation and insurance and investment objectives, a product is suitable for that prospect. This shall include the nature of product, mode of premium payment and tenure of policy as well as premium payment.
• 7.2. The suitability information collected including recommendations shall be preserved by the Insurer making them part of the policy records and shall be made available to the Authority for inspection if required.
• 7.3. The on line sales process should also capture the suitability information of the prospect / purchaser and recommendations made, if any. However, the life insurers may allow an option to such prospects to bypass the suitability module, only if the prospect so insists, after collecting due declaration that he or she consciously choses to bypass suitability module even though the same is recommended.
• 7.4. Further, an agent or intermediary shall provide the benefit illustration statement as prescribed to the potential policyholder.
  • 7.4.1. In respect of unit linked policies, the agent or intermediary shall clearly indicate how the premium paid is appropriated towards various charges from the unit fund and the balance of the fund at the end of the first year and subsequent years. The upfront charges in the initial years have to be brought to the knowledge of the policyholders.
• 7.5. Every life insurer is required to have a Board approved policy and the process to ensure suitability of products sold taking into account the customer profile and needs documented at the time of solicitation. This policy, at the minimum, shall comply with the requirements prescribed herein. The life insurer may decide on the format in which suitability information is to be collected. Further, the Life insurer or intermediary, as the case may be, shall provide adequate training with respect to collection of suitability information and recommending products suitable to prospects, to all the agents, specified persons, any other person authorized to solicit life insurance on behalf of them.

8. Policyholder Education:

• 8.1. The insurers and Life Insurance Council shall actively promote education of the policyholders on the Unit Linked Products on an ongoing basis to guide them in taking appropriate decisions by apprising them of the features, risk factors including the terminology and the definitions of charges under these products.
• 8.2. Life Insurers are also required to place on their website a standardized presentation of each product on offer for sale and ensure that agents and intermediaries do not use unauthorized presentations and projections.
• 8.3. All life insurers shall provide on their website a standalone premium calculation module for the products which are on offer for sale. This premium calculator shall provide premium chargeable for any person using it, without insisting on collection of Name or Mobile / Phone Number or email id.
• 8.4. A life insurer may offer to collect mobile phone number and / or email id if the person visiting the website chooses to provide the same with explicit consent that he / she may be contacted for any assistance by the life insurer / agent. However, the Life Insurers have to ensure that contacting the prospect does not cause any inconvenience to him / her and explicit consent is taken before commencing the talk on phone. No emails shall be sent unless explicit consent is given by an individual for receiving such mail.

9. Review of new business projections: