Insurance stocks gain amid reports of IRDAI plan to revisit surrender charges

According to reports, IRDAI is likely to consider rationalisation of proposed surrender value in its March board meeting

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Insurance stocks HDFC Life Insurance, Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), and Max Financial Services gained up to 3 percent on March 4 after reports suggested that the Insurance Regulatory and Development Authority of India (IRDAI) is likely to consider rationalisation of proposed surrender value.

Surrender value refers to the cash value that an insurance policyholder is entitled to receive if they decide to terminate or surrender their life insurance policy before its maturity or before the insured event occurs.

The surrender value can vary depending on factors such as the duration of the policy, the amount of premiums paid and the terms of the insurance contract.

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In December 2023, IRDAI had planned to increase surrender value paid by life insurance companies to its policyholders by reducing surrender fee charged by these firms.

IRDAI’s suggestion to hike surrender values and cut surrender charges caused a concern among life insurance companies. Brokerages had estimated a 400-500 basis points (bps) hit on the margins for life insurance companies.

However, IRDAI is ready to consider rationalisation of proposed surrender value after multiple representations made by individual life insurance companies as well as the Life Insurance Council (LIC), a CNBC-TV18 report said.

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According to reports, IRDAI is considering the life insurance industry’s suggestion to keep the calculation of surrender value the same as is for policies surrendered before five years, irrespective of the duration of that life insurance policy.

However, the regulatory body might also consider reduction of threshold for calculation of surrender value. If threshold limits is brought down then surrender value will also come down.

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