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The Insurance Regulatory and Development Authority of India (IRDAI) has rejected the Life Insurance Corporation of India’s (LIC) request to revise surrender value regulations. LIC had proposed changes that would increase the interest rate assumption for calculating surrender values and recommended a plan-based Government Securities (G-Sec) benchmark to determine these values. However, IRDAI remains firm in its decision to implement uniform rules for all insurance companies, including LIC, with no exceptions. This ruling comes as insurers prepare for the new regulations, which will take effect on October 1, 2024.

The regulator's decision is a significant step toward ensuring fairness across the insurance industry. IRDAI has emphasized that rules must apply equally to all players, preventing any special treatment for the largest state-owned insurer. The new surrender value regulations aim to ensure "reasonableness and value for money" for policyholders, whether they choose to exit or continue their policies. Surrender charges on traditional savings plans, which often offer little or no payout if premiums are discontinued, have been significantly reduced in IRDAI’s final circular.

One key element of the new rules is the method for calculating the Special Surrender Value (SSV). The updated regulations allow for a discount rate based on the 10-Year G-Sec yield plus 50 basis points. LIC had requested an increase in this cushion and argued that the 10-Year G-Sec yield should be excluded from calculations, advocating for a plan-based benchmark instead. LIC's proposal stems from the fact that about 70% of life insurance investments are in 30-year government bonds, which makes the company reliant on long-term interest rates for its financial projections.

In addition to life insurance regulations, the upcoming health product regulations have also been a major focus for the insurance industry. IRDAI expects comprehensive coverage across all health-related issues, including Ayurveda and homeopathy treatments, as well as outpatient and hospitalization coverage for people of all ages and conditions. Insurance companies have been working to adapt to these new requirements, but the industry has expressed concerns over the time required to adjust underwriting policies and train field personnel. Despite requests for an additional extension, IRDAI has already granted a four-month transition period and is unlikely to offer any further leniency.

Insurers must comply with these new norms by October 1, 2024. Until then, they can continue selling existing products up to September 30, 2024. This move ensures that consumers receive better protection and more transparency in both life and health insurance policies, while insurers are held to higher standards of fairness and accountability.

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