Irda wants cap on sum assured on life insurance policies

Monday 27, February, 2012 Insurance Regulatory and Development Authority (Irda) has proposed to set a maximum limit for sum assured on life insurance policies. The move is to ensure that insurers take on the maximum risk on themselves rather than the current practice of heavily relying on reinsurance companies to honour insurance claims. In a letter to insurance companies, the regulator said most products filed for clearance assign "no limit" to the maximum sum assured, which leads to fronting, which means more reliance on the reinsurer. Insurers that have reinsured very little risk may find it difficult to honour claims, which will damage the trust built on the industry, said the regulator. Separately, the regulator also said in its letter that insurers must make a clear distinction between group and individual policies. Irda observed that currently most group policies work as individual products, as insurers directly approach individual bank customers. Also, premium rates are similar for individual and groups members.

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