New mortality table to bring down life insurance premium

Tags: Insurance

New life expectancy ratios to be considered from April 2013

Life insurance premiums will see a modest fall after the new mortality table comes into effect taking into consideration the new life expectancy ratios.

Companies, beginning April 1, 2013, may charge lower premiums on life plans.

Insurance companies charge mortality premium based on the mortality table and their own risk assessment. “We have finalised the table and intend to put it in use from the next financial year. The indications are encouraging as the life expectancy has gone up for most of the categories,” said J Hari Narayan, chairman of Insurance Regulatory and Development Authority (Irda).

The mortality charge ranges between 0.5 per cent to 12 per cent of the total annual premium, depending on the age, gender and insurance policy chosen by policyholder.

“If the mortality table shows improvement in life expectancy, then definitely premiums would be lowered and that would be passed on to policyholders,” said Sanjay Tiwari, vice-president – products, HDFC Standard Life Insurance.

At present, insurance companies are charging mortality premiums based on Irda data of 1994-96 and insurers’ own internal risk experiences. The new mortality table is based on data collected during 2004-08. “Although mortality charge is not a big portion of total premium, it might decrease premium to some extent based on age, gender and policy chosen by policyholders,” said Hari Narayan to Financial Chronicle.

The average life expectancy has improved from 60 years in 1996 to 65 years in 2011.

“At present, we are using our own table based on our risk analysis and we would only be able to say anything once the table is released,” said Sanjeev Kumar Pujari, appointed actuary of SBI Life Insurance.

Irda chairman spoke at the health insurance conference in the capital held by the industry body Federation of Indian Chambers of Commerce and Industry (Ficci). Pointing to low levels of health insurance penetration, he said, “For a wider reach, government should look at combination of schemes, like Aarogyasri scheme and Rashtriya Swasthya Bima Yojana (RSBY) that might help people below as well as those above poverty line.”

Despite being allowed for more than a year now, health insurance portability has failed to pick up. Irda chairman, however, told Financial Chronicle, “It has achieved its goal to some extent as the prices have stabilised and no insurance company has increased its premium suddenly by four to five times.”

For the insurance penetration to increase, the regulator feels tax exemptions should be categorised. “If section 10(10D) is based on the tenure of policy rather than ratio between premium and sum insured, then it would be a good move for industry. Also, separate buckets should be there for life insurance as against the present scenario where Section 80C is shared by instruments, like provident fund, ELSS and children’s tuition fees,” said Hari Narayan.

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