March 4 witnessed a surge of up to 3% in insurance stocks such as HDFC Life Insurance, Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), and Max Financial Services. The boost came following reports indicating that the Insurance Regulatory and Development Authority of India (IRDAI) is contemplating a review of proposed surrender value rationalization.
Surrender value, in the context of life insurance, denotes the cash amount that a policyholder is eligible to receive upon termination or surrender of their insurance policy before its maturity or the occurrence of the insured event.
This value is influenced by several factors including the policy’s duration, the total premiums paid, and the specific terms outlined in the insurance agreement.
In December 2023, the Insurance Regulatory and Development Authority of India (IRDAI) announced plans to enhance the surrender value disbursed by life insurance companies to policyholders. This initiative involved reducing the surrender fee imposed by these firms.
The proposal by the Insurance Regulatory and Development Authority of India (IRDAI) to increase surrender values and decrease surrender charges raised concerns among life insurance companies. Brokerages anticipated a potential margin impact of 400-500 basis points (bps) for these companies.
Nevertheless, IRDAI is reportedly open to revisiting the suggested surrender value rationalization following multiple representations from individual life insurance firms and the Life Insurance Council (LIC), as per a CNBC-TV18 report.
Reports indicate that the Insurance Regulatory and Development Authority of India (IRDAI) is contemplating the life insurance industry’s proposal to maintain the calculation method for surrender value consistent for policies surrendered within five years, regardless of the policy’s duration.
However, the regulatory body is also deliberating on potentially lowering the threshold for calculating surrender value. A reduction in the threshold limit could result in a corresponding decrease in the surrender value.
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