Highest net asset value cover plans are risky: IRDA chiefSeptember 15th, 2011 - 4:39 pm ICT by IANS
New Delhi, Sep 15 (IANS) Unit-linked life insurance products that promise buyers returns based on highest net asset value (NAV) achieved during the tenure of the policy are “risky” and may mislead consumers, chief of the insurance watchdog said Thursday.
The Insurance Regulatory and Development Authority (IRDA) may soon ask life insurance companies to discontinue such products, also commonly known as guaranteed NAV plans.
These plans guarantee returns as per the highest net asset value a policy is able to achieve during the term of the policy.
“The concern which I have as a regulator is that the communication mechanism for highest NAV products might lead to misconceptions among buyers. Therefore, it’s a risky product… we are wondering how best to address it,” said J. Hari Narayan, chairman of IRDA.
“We are getting the details and data on the matter and we will take a regulatory decision soon,” Narayan told reporters on the sidelines of a health insurance summit organised by the Confederation of Indian Industry (CII).
Highest NAV products were a hit among life insurance companies and were introduced after the regulator introduced stringent norms on launching of pension products.
A unit-linked insurance plan, which guarantees returns based on highest NAV, typically invests its money in equities and debt instruments. If the market falls, insurers will move funds into debt to protect the guarantee.
IRDA’s contention is that a large number of such products in the market could lead to a heavy sell-off in equities as all insurers will try to move out of stocks in a falling market.
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