Scrapped insurance products bring actuaries in spotlight

Chennai, Oct 24 (IANS) The Indian actuarial profession is in the spotlight with more than 500 life insurance products being scrapped by the insurance regulator since 2007 for being opaque or against the interest of policyholders.

The latest ban order by the Insurance Regulatory and Development Authority (IRDA) was issued Thursday for the sale of universal life product – a hybrid of unit linked insurance policy (ULIP) and traditional policy.

Actuaries are professionals who price an insurer’s product, balancing the interests of policyholders and shareholders.

The series of bans imposed on insurance products by the regulator brings the focus on the appointed actuaries in insurance companies as well as IRDA’s actuarial department that gave its approval to sell those products.

‘The actuaries – including appointed actuaries and those in the IRDA – are to share the blame. The former for going along with the marketing department and the latter for approving the products filed,’ R. Ramakrishnan, who was a member of the R.N. Malhotra panel on insurance reforms and former executive director (actuarial) of Life Insurance Corporation (LIC) of India told IANS.

Institute of Actuaries of India (IAI) president Liyaquat Khan said: ‘It is 10 years since the life insurance sector was opened up. The industry is in a state of unease. If more than 500 products are scrapped, it reflects the inability of the IRDA to regulate the sector.’

According to him, an appointed actuary is first an employee of a company and not just a representative who acts on behalf of the regulator. But the IRDA has not given him the power to refuse his CEO when asked to price a product and file it for IRDA’s approval.

‘In a product, he settles the assumptions and goes ahead with its pricing,’ Khan told IANS.

‘The appointed actuary ensures that the policyholders and shareholders get equitable returns,’ K.K. Wadhawa, member of governing council of Institute of Actuaries of India (IAI), told IANS.

Disagreeing with them, Ramakrishnan said: ‘An appointed actuary has to certify that the products are fair and equitable. The banned products were loaded in favour of shareholders and not the policyholders.’

Responding to that, Khan said: ‘If there is a failure on the part of appointed actuary in reserving then I will agree. But there has been no reserving failure.’

‘There are actuaries who have refused to price a product. It was the refusal to price an actuarial funded product by an appointed actuary of a large private life insurer that resulted in that company bringing pressure on the regulator to ban the product,’ a senior insurance firm official, preferring anonymity, told IANS.

IRDA officials were not available for comments.

As a matter of fact, the trend of bulk banning of products by the IRDA started in 2007 when the regulator stopped selling actuarial funded (policies not easily understood by policyholders) products.

It is rumoured the recent ban on universal life products is due to pressure from life insurers not having such a product.

Actuaries said they were victims of transparency as the ULIP and universal life products disclosed the charges up-front which is not the case with traditional policies like endowment.

Officials of insurance companies also saw a foreign hand in the problem affecting only the private life insurers and not the LIC.

Most of the products which were banned were several years old. They were designed and filed by appointed actuaries who were mostly foreigners. They brought here what had failed overseas, like the actuarial funded product, said an insurance firm official.

‘The shareholders of private life insurers should question their officials as to the huge expense run that their companies suffer and is there something wrong with the product mix,’ Ramakrishnan said.

Actuarial professionals cited the change in the product approval process within the IRDA and said that the decision to clear an application is not taken by the actuarial department alone.

Earlier, it was only the actuarial department of the IRDA that gave the clearance. Now the product application also goes to members (life, investment) for their views before a product is approved.

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