Life insurers are likely to restructure some of their existing policies after the insurance regulator announced new guaranteed surrender value rules.

The new regulations have come into effect from April 1, 2024 and offer guaranteed surrender value of 30, 35, 50 and 90 per cent of total premium paid if the policy is surrendered in second, third, fourth-seventh and during the last two years of the policy, respectively, for non-linked insurance policies adjusted for survival benefits.

For single-premium policies, the guaranteed surrender value is 75 per cent of total premium if surrendered within three years.

Tarun Chugh, MD and CEO, Bajaj Allianz Life Insurance, said the changes in the surrender value regulations have been pragmatic with the regulator looking at the best interest of the policyholders.

“The last two years’ surrender value has been brought up to 90 per cent and that is good for the policyholders,” said Chugh.

However, companies may have to restructure some of their products and keep additional reserves.

“It will vary from company to company, but there would be some restructuring to be done on the product side. Some companies may have products with lower surrender values and they could be selling more of that product,” said Chugh.

The regulator has also asked insurance companies to come up with independent products that have a near 100 per cent surrender value.

“The products could be different for rural, urban and high net worth customers and this allows flexibility to the insurers,” he said.

Analysts also anticipate a varying degree of impact among insurers.

“The degree of impact is dependent on the quantum of traditional products sold and the persistency of these products. The lapsation profit component is typically highest for non-par savings products, with company-specific exceptions,” said BNP Paribas Securities in a report.

Industry growth

Life insurers posted a modest growth of 2 per cent in FY24 with the total premium at Rs 3,77,960.34 crore in the year ended March 2024 compared with Rs 3,70,543.02 crore a year ago, according to data from Life Insurance Council.

“Considering a higher base (taxation change impact) in March 2023, the individual weighted received premium (WRP) for private players in the month of March 2024 declined 12 per cent year-on-year. For the industry, individual WRP declined 13.3 per cent in March 2024,” Motilal Oswal said in a report.

“Given the relatively favourable surrender charge regulation, the industry is expected to return to double digit growth in FY25,” it said.

CareEdge Ratings said in a report it expects the life insurance industry to grow at 11-13 per cent over a three-to-five-year horizon, driven by group products, individual pension and life covers.