Circular No. IRDA/ACT/CIR/MISC/154/09/2010, dated 9-9-2010
1. Objective and target group:
The proposed standard product is aimed to provide a comprehensive package of insurance covers relevant to persons belonging to economically weaker sections in rural and urban areas. The standard product is also aimed to be the primary instrument for fulfilment of the rural and social obligations of insurers under the Insurance Act. The product will have defined options and levels to provide choice and flexibility to customers in order to cater to individual circumstances with a layered basis, although on a pre-defined basis described herein.
2. Micro-Insurance and Rural & Social Sector Obligations:
The proposed standard product may be mandated for the insurers to offer in the market to meet the rural and social sector obligations. The insurers should not be allowed to market any other product which offers either lower benefits for the premiums charged than in the standard product or higher premium which offers lower benefits than the standard product for the premium charged. This is proposed to eliminate the products which provide no real and long term benefits to the policyholders and to ensure the poorer sections have access to products which provide enough risk cover.
The premium rates are indicative for the covers proposed and the insurer may be given liberty to offer the product with its own premium rates which may be allowed to differ from the proposed indicative rates by 10%.
3. Linking with the Government Sponsored Insurance Schemes:
This product would facilitate supplementing or topping up of any existing social security benefit and would not overlap such benefits. The main criterion to be applied in this context is that the insured person would not benefit from two sources from the same event, one from a government on a free or subsidised basis and another through the insurance cover embedded in the standard product, except to the extent of any explicit topping up provisions. In this context, we may propose the standard product to have different layers. The first layer may be treated as the products that are offered through the Government. The second layer may be offered to those who are willing to have insurance cover over and above the first layer. In the second layer, we may propose to have a deductible equivalent to the sum insured of the first layer. The second layer should be the proposed standard product which is to be mandated. If the policyholder is willing to have insurance over and above the second layer, the policyholder may be allowed to take the insurance under commercial terms with a deductible equivalent to sum insured in the first two layers.
4. Distribution /Acquisition Costs:
The distribution channels and the distribution & acquisition costs for the proposed product may be in similar lines with the IRDA (Micro-Insurance) Regulations, 2005.
5. Linking with Kisan Credit Card, Farmer Clubs and Self Help Groups (SHGs):
The proposal to link with the KCC, farmer clubs, SHGs would enable the insurers to reach out to the policyholders easily for premium payment and other servicing. This would also enable the insurers to improve the persistency as these groups are easily reachable and have collective efforts in meeting their needs. With regard to KCC holders, the holders have the access to money in the form of minimum credit limit of Rs.25000/- and maximum credit limit of Rs.10lakhs in the form of working capital (allows any number of withdrawals and repayments in the allowed to provide flexibility) and term loan (to(for ST crop loan, consumption loan and repayment of non-institutional loans and to purchase agricultural implements, plants and machinery and land developing including construction of different types of storage facility). The credit card is valid for 5-7 years subject to annual review.
The proposal to link with these groups would help insurers not only to meet their obligations, but also helps the insurers to issue products with longer durations and with savings oriented.
6. Distribution Mechanism:
The following mechanism may be followed to ensure that the rural and social sector obligations which are met by the insurers not only comply with the obligations but also ensure that the mechanism encourages the spread of insurance across pan India. To achieve this, the following mechanism may be followed:
a. For each State two general insurer and two life insurer may be allotted;
b. The reason for allotting one general insurer and one life insurer to each State is to ensure:
i. The rural /social/micro-insurance groups across the State are covered completely by these insurers;
ii. As the combi product has components of both life and non-life, it may be essential to have the presence of both the insurers to ensure proper underwriting/rating of proposals and settlement
c. Allotment of insurers to each State may need to mandate certain levels of infrastructure/ distribution network/TPA/network hospitals and to consider:
i. the existing infrastructure established by the insurers in terms of branches across the rural areas/ semi-urban areas/urban areas;
ii. the existing arrangements of the insurers with different distributional channels/ NGOS/SHGs for the propose distribution of the insurance cover across the State;
iii. the existing arrangements of the insurers with the TPAS and network hospitals (in similar lines with the RSBY) to ensure that cashless facility is made available in rural/semi-urban/urban areas;
iv. the commitments of the insurers to establish such requirements as mandated within a given time frame;
v. The existing business portfolio in terms of rural/social/micro-insurance business;
vi. The existing business portfolio in terms of serving government sponsored insurance schemes;
d. Need to examine whether this is considered against competition principles.
7. Tie up between life and non-life insurers:
As in the case of Micro Insurance, a life insurer may issue policies under this standard product and have a tie up with a non-life insurer for the benefit structure relating to “General” described below or a non-life insurer may issue policies under this standard product and have a tie up with a life insurer for the benefit structure relating to “Life” described below.
The details of the tie up arrangements between a life insurer and a non-life insurer shall conform to provisions contained in regulation 3 of the IRDA Micro Insurance 2005 Regulations.
8. Benefit structure:
A. Benefit structure:
The benefit structure will include both life insurance and general insurance covers, as listed below.
(i) Term life cover on death during defined term,
(ii) Pension benefits and costs in line with NPS (PFRDA) and
(iii) On mandatory basis convert accumulated savings in NPS into a pension at the end of the term or on earlier surrender of the policy.
(i) (a) Personal Accident- Accidental Death benefit (PAAD)
(i) (b) Persona Accident- Total and permanent disability (PATPD)
(i) (c) Personal Accident- Partial and permanent disability (PAPPD)
(i) (d)Personal Accident- Medical expenses (PAME)
(ii) (a)Health- Pre-hospitalisation (HPH)
(b)Health- Hospitalisation (HH)
(c) Health- Post-hospitalisation (HPPH)
(iii) Critical illness (CI) covering cancer, stroke, kidney failure, first heart attack and major organ transplant
(iv) (a) Fire- Dwelling (FD)
(b) Fire- Assets, such as pump set, agricultural tools, farm machinery (FA)
(c) Fire- Stock (including livestock) (FS)
(iv) (a) Motor- liability (for 2 wheeler, car and tractor)- (ML)
(b) Motor- own damage (for 2 wheeler, car and tractor)-(MOD)
(v) Weather: Protection against adverse weather incidence, such as deficit and excess rainfall, frost, heat (temperature), relative humidity etc based on official records of a recognised government agency (W)
B. Benefit options:
There will be 4 layers of options in ascending order of coverage (and cost) as listed below:
(i) Base option: This will include Term life, PAAD, PATPD, HH and FD
(ii) Intermediate option: This will include base option benefits plus survival/ pension, PAME, HPPH, FA and ML (2 wheeler)
(iii) Superior option: This will include Intermediate option plus PAPPD, HPH, ML (tractor), MOD (tractor), W
(iv) Supreme option: This will include Superior plus all other benefits listed in A above.
C. Benefit levels:
(i) Sum insured will be available at 6 levels, namely 100000, 200000, 300000, 500000 and 1000000
(ii) Sum insured to be offered will be in line with limits in the KCC or other verifiable monetary values serving as proxies to income of insured.
(iii) Sum insured will be linked between LOBs by the relationship of 100% for death cover in Term life, 200% to 300% for PA, 25% to 50% for H and CI, 50% to 150% for F and 25% to 75% for M.
(iv) Each section such as PA, H or other benefits will be subject to the combined limit of sum insured defined for the section as determined in (iii) above.
(v) Maximum sum insured for different general classes, after application of criteria (i) to (iii) above, are as stated below:
Health, CI 500000
D. Extension of cover to family members:
Only a supporting spouse contributing to the economic activity of an insured head of family can be covered for death benefit under the Term life sections.
Under the general sections, spouse and up to 2 children can be covered for PA, H and CI sections.
Under all sections, wherever applicable, spouse will be covered for 50% of SI for insured head of family. Each child will be covered for 25% of SI for insured head of family. The linkages and limits stated in C (iii) above across LOBs will apply on each family member separately.
9. Period of cover and premium paying term:
The period of cover will be 10, 15, 20 and 25 years in all cases of individual assurances/ insurance policies other than auto insurance. Although group policies may be issued on a one year renewable basis, attempts to design level premium long term basis are expected. Premium paying term may either be equal to the period of cover or end 5 years prior to period of cover.
10. Underwriting aspects:
1.1 Age proof: Standard age proof is compulsory. Where, a standard age proof is not available, a certified extract from records of KCC, associated bank loan or other similar record may be accepted.
1.2 Age limits for entry and cessation of cover: Minimum age at entry 18 and maximum age at entry 50; more liberal limits as per insurer’s normal practice may be allowed. Maximum age for continuation of cover in all cases is 70.
1.3 Health declaration: Simple health declaration by self/ insured head of family attested by an official nominated by the nodal agency is compulsory. In the case of group policies, insurer may, if he deems fit, enter into arrangements with the group policyholder/ nodal agency for maintenance of records of health declaration at the latter’s office.
1.4 In respect of insurance cover for C (critical illness) additional requirement of a short medical examination by a medical examiner acceptable to insurer and a normal body weight and height are required. Further, a survival period of 30 days after diagnosis may be applicable.
1.5 In respect of F (fire policies), declaration on continuous occupation and maintenance will be required.
1.6 In respect of all insurances, reasonable care clause and exclusion of cover for intentional/ malicious acts of self damage will be applicable.
11. Exclusions, deductibles and waiting periods:
1.1 All life insurance covers will be subject to a 3 months waiting period clause. Suicide within 1 year is a further exclusion.
1.2 All health insurance and critical illness covers will be subject to exclusion of pre existing diseases as per currently notified conditions approved by IRDA and also exclude chronic or other ailments needing treatment for more than 3 months.
1.3 All insurance covers will be subject to exclusion of claim/ damage arising out of intentional self injury, illegal activities or malicious self damage.
1.4 Fire and contents cover will be subject to exclusion of cover for thatched houses and jewellery. Burglary cover is not included.
1.5 In respect of Motor, 10% deductible will apply on cover for tractors and 5% deductible on 2 wheelers and private cars. Commercial use of all motor vehicles will exclude cover.
1.6 All general insurance covers on property of any type (moveable and immovable) will be subject to reasonable care clause.
12. Distribution channels:
1.1 Regional rural banks, scheduled banks, self help groups and micro insurance agents will all be eligible to act as agents subject to IRDA regulations.
1.2 Commission rates will be subject to maxima shown in the table below:
|Line of business||First year commission as % of premium||Renewal commission as % of premium|
1.3 Any over-rides spent over and above commission will be subject to upper limit of 10% on commission paid.
1.1 Individual life insurance covers will be based on 150% of published mortality rates. Loading for expenses and contingencies, including profit shall fall within a normal range of 20% to 50% in the first year and 5% to 10% in the second and subsequent years.
1. Sample rates for quinquennial in the age range 25 to 50 for terms 15, 20, 25 are worked out. These will indicate the cost involved and help work on any full range of ages and terms required.
2. Bases used for calculation are:
· Mortality: Non medical MMIC (2006-08) rated up by 25%- likely to be 150% of LIC 94-96 and appropriate for population under consideration
· Interest: 5.5%- reasonable in current conditions
First year: Commission 10% of premium plus 20% of premium for other variable expenses and Rs 200 per policy as fixed cost
Second and subsequent years: Commission 2% of premium plus 5% of premium for other variable expenses and Rs 50 per policy as fixed cost
· Profit and other: Ignored- assumed to be through slender margins in above 3 elements
4. Premium rates for individual assurances:
|Premium per 1000 Sum Assured for term|
5. Premium rates for group life assurances: To be worked out from tables in 4 above by allowing reductions as indicated in 1.3.
1.2. Premiums for general insurance covers arranged on individual basis will fall in the ranges suggested below:
PAAD 0.20% to 0.35% of sum insured varying by age bands and number of persons covered in the family
PATPD 0.11% to 0.15% of sum insured varying by age bands and number of persons covered in the family
PAPPD 0.25% to 0.50% of sum insured varying by age bands and number of persons covered in the family
PAME 0.25% to 0.50% of sum insured varying by age bands and number of persons covered in the family
HH 2.5% to 4% of sum insured varying by age bands and number of persons covered in the family
HPPH 2.0% to 3.5% of sum insured varying by age bands and number of persons covered in the family
HPH 2.5% to 4% of sum insured varying by age bands and number of persons covered in the family
CI 0.1% to 5% of sum insured varying by age bands and number of persons covered in the family
FD 0.04% to 0.08% of sum insured depending on construction type. Material used for walls such as rubble stone in lime/ mud mortar, stone masonry or bricks with cement concrete and material used for roof such as asbestos sheets, RCC or country made brick tiles and similar factors may be considered for classification of risk.
FA 0.04% to 0.08% of sum insured depending on nature of assets
FS 0.04% to 0.08% of sum insured depending on nature of stock
ML 1.2% to 2.5% of sum insured depending on vehicle type and vehicle age MOD 2.1% to 4.2% of sum insured depending on vehicle type and vehicle age
W To be worked out as per 1000 SI per hectare considering nature of crops covered, deductible and historical record of the meteorological division, from time to time on an annual basis.
1.3 Premiums under group policies will be calculated with reference to premium rates mentioned in 1.1 above and thereafter subjected to a reduction stated below:
|Group size||Reduction for Life insurance premiums||Reduction for General insurance premiums|
|Less than 50||2%||1%|
|51 to 250||4%||2%|
|251 to 2000||7%||5%|
|More than 2000||10%||7%|
1.4 All group insurance policies will also have a profit sharing arrangement subject to a maximum profit share as stated below:
|Group size||Profit share per cent||Profit share per cent|
|Less than 50||2%||1%|
|51 to 250||4%||2%|
|251 to 2000||7%||5%|
|More than 2000||10%||7%|
1.5 Life insurance covers and general insurance covers may provide option to continue cover even in the event of non-payment of premiums due continuously for a maximum period of 2 years in a 5 year cycle. The option shall be allowed subject to payment of additional premium of 30% of the normal premium.
1.6 All premiums for general insurance covers shall be subject to a reviewability clause to review premium rates once in every three years.
14. Policy conditions:
Policy conditions relating to free look, loan, surrender, lapse and revival, furnishing data under group policies and renewability will be as per individual company’s normal practice for other policy contracts applicable.
15. File and Use procedure:
Simplified file and use procedure will apply to this standard product. Separate instructions on this aspect will be circulated to companies.
16. Credit for business under the rural and social obligations:
Credit for business under current plans is under review. Insurers will be given credit for business under this product on a special basis, where insurance covers will be grouped into categories and business falling under each unit will get credit for one unit, as shown below;
Life- temporary assurance covers 1 unit
Life- savings element, as an addition, subject to minimum
savings element equal to 50% of premium for temporary
assurance cover 1 unit
PA and Health- any part or all parts 1 unit
Other insurance covers 1 unit
In short, cover for an individual under all categories above will result in credit of 4 units.
17. Total premium:
|*excludes premium for weather insurance and pension/survival benefits|
|Minimum premium and maximum premium refers to lower and upper limits for that cover. The actual premium may vary depending on age/period of cover/house type/ vehicle type/contents etc|
The life and non-life insurers are requested to offer their considered opinion on or before 10/10/10. The consumer organizations, NGOs, SHGs, MFIs, may also respond before that date. All responses may be addressed to [email protected]