CIRCULAR NO. IRDA/ACTL/ULIP/124(2)/10/2010, DATED 27-10-2010

This has reference to the following circulars & regulation issued by the Authority:

  1. IRDA/ACT/CIR/ULIP/102/06/2010, dated June 28, 2010
  2. IRDA/Actl/Cir/ULIP/124/08/2010, dated 4th August, 2010
  3. IRDA (Treatment of discontinued Linked Insurance Policies) Regulations, 2010.

In the life insurance industry, group linked products could be broadly categorised into two, viz., fund-based products and non-fund-based products. Fund-based products are those which are offered to Employer-Employee groups of establishments covered under Labour Act, Shops & Establishment Act, Factories Act or employees of State/Local/Central Government Departments and consist of (a) Group Gratuity (b) Group Leave Encashment and (c) Group Pension/Deferred annuity. Conventionally superannuation products refer to a combination of any two or three of the above fund-based products. Products other than fund-based shall be categorised as non-fund-based products.

In the light of queries received from some insurance companies with regard to group linked fund-based products, the following clarifications are issued :

  1. The Regulation IRDA (Treatment of discontinued Linked Insurance Policies), 2010 shall not be applicable to all group fund-based Employer-Employee products viz., group gratuity, group leave encashment and group pension/deferred annuity.
  1. No non-Employer-Employee Group Unit linked fund-based products will be approved by IRDA. Further any approved fund-based product shall be offered only to the Employee-Employer groups of establishments mentioned above and to no other group.
  1. All such Employer-Employee products shall be allowed to alter the premium/contribution in accordance with the actuary’s certificate as per AS 15 (revised). Where the fund is at surplus, the insurer may allow “nil contributions/premiums” under the insurance contracts based on the actuary’s certificate in accordance with AS 15 (Revised) and such contracts shall not be treated as discontinued contracts. Otherwise, the contracts shall be treated as discontinued contracts.
  1. The mandatory minimum life cover, as specified in the recent ULIP circulars, shall not be applicable. However, such schemes shall include life cover at the option of the employer sponsoring the scheme for the employees of the group.
  1. The insurer shall not allow any top-ups with respect to Employer-Employee schemes unless required as per the actuary’s certificate in accordance with AS 15 (revised), to address under funding of the scheme.
  1. Although no lock-in period is  mandated under group fund-based products, in order to give flexibility to the Employer, the insurer is entitled to levy a surrender charge not exceeding  0.05 per cent of the fund, with a maximum of Rs. 5,00,000 if the fund is withdrawn before the third policy anniversary. This would provide adequate cover for the insurer to meet all relevant expenses.

All group products, whether fund-based or non-fund-based shall be subject to cap on charges and reduction in yield requirements as below (all references to ‘cap on charges’ are as set out in reference 1st circular cited above) :

a. where individual accounts are maintained, the requirements shall be complied with  at the individual account level;

b. where the account is maintained at the fund level, the requirements shall be at the fund level.

  1. The guaranteed return (specified in reference 2nd circular cited above), shall be applicable to deferred pension/deferred annuity ULIP schemes only.

(a) The guaranteed return at individual member level shall be applicable only if the    membership in the group scheme is at least five years.

(b) The guaranteed yield applicable to pension/deferred annuity schemes shall be published in the company’s website at the start of each financial year.

(c) For all the contributions/premiums received from 1st September, 2010 to 31st March,  2011, the minimum guaranteed rate of 4.5% p.a. shall be applicable.

(d) Thereafter the guaranteed return shall be as prescribed in the reference 2nd cited.

  1. All group fund-based products, which are compliant with this circular, can be offered by the insurers. Insurers are required to send a list of such products to the Authority on or before October 29, 2010.
  1. All non-fund-based group products shall be filed afresh, duly complying with recent Circulars and Regulation on ULIPs.
  1. All non-fund-based group unit linked products where the master policy was issued before 1-9-2010 should be revised to comply with the ULIP Circulars and Regulations cited above.

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