Indexing annuity rates to inflation or G -secs on cards

The Insurance Regulatory and Development Authority of India (Irdai) is exploring the possibility of indexing annuity rates to government securities or the inflation rate so that they reflect the cost of living of consumers.

Annuity products may shift from fixed rates, which generally give lower returns, to floating rates.

Subhash Chandra Khuntia, Irdai chairman, said: “If the annuity rate is indexed to something that reflects the cost of living, it will be good for both the insurer and the policyholders.”

A group has been constituted to look at this.

Annuity plans enable customers to receive payments regularly throughout their lives after they invest a lump sum. The insurance industry has seen a surge in demand for annuity products due to increasing life expectancy and rapidly declining interest rates. Experts have said the recent fall in bank interest rates has made annuity products attractive and the demand for such products will continue to soar in the coming years with a huge section of the Indian population working in the unorganised sector, where there is no pension.

The regulator recently launched a standard individual immediate annuity product — “Saral Pension” — which all life insurers have to start offering by April 1. The regulator has introduced standard products in the past few months, starting with standard health products, Covid products, term products, etc. It is also planning to introduce a few other standard products.

Speaking at the annual summit of the Insurance Brokers Association of India (IBAI), Khuntia said around 4.2 million lives had been protected under Corona Kavach and approximately 536,000 under Corona Rakshak. These were the two standard Covid products the regulator had launched in June last year. They are cheaper than comprehensive health policies.

Around 12.8 million lives have been covered under Covid-specific products with a premium of more than ~1,000 crore, and the sum insured is more than ~12 trillion. The chairman said insurance companies had been asked to have agreements with network providers (hospitals) on the cost of disposables and Covid treatment. In the initial days of the pandemic the health insurance industry saw costs rising due to disposables because there was no standard charge for such products and customers had to pay for them. But he said it was a transient phenomenon and the costs had come down.

“We would like to develop such agreements between health providers and insurers so that there is some certainty and policyholders are not asked to pay anything extra. Now, things are under control and we are keeping a watch on the situation,” he said.