The Insurance Regulatory and Development Authority seems to have woken up to the ill effects of highest NAV product mis-selling. J Hari Narayan has hinted that a few traditional products also could be axed. The regulator is in favour of same insurer for accumulation and annuity phase of pension products

The Insurance Regulatory and Development Authority (IRDA) is closely looking at all the highest NAV products available in the market. "We are looking at all the message around these products, how these products are sold, what the customer understanding is of the product. We feel there is mis-selling in highest NAV products," IRDA chairman J Hari Narayan has said.

It looks like IRDA has made up its mind about showing the door to highest NAV products. The thought has come up after highest NAV products have been in the market for more than a couple of years.

Moneylife has maintained all along that 'highest' NAV unit-linked insurance plans (ULIPs) give suboptimal results and cause confusion for customers. The most important point to understand is that insurance companies are guaranteeing NAVs and not returns!

Late, but IRDA has finally woken up to the way highest NAV products were sold in the market and the perception it was creating in the minds of customers about the kind of returns which could be expected with these products. Most of the investment would be in debt instruments and the returns no better than any other similar investment.

Last year it was Universal Life Policy (ULP) that IRDA suddenly discovered was toxic and decided to scrap it after it was in the market for over a year. It found its way back re-christened as Variable Insurance Policy (VIP). This year IRDA has found a new target, the highest NAV product.

Insurance companies Moneylife has interacted with recently are not happy with the IRDA's hint at scrapping highest NAV products. According to one insurance company head, "It is possible customers feel that they are going to get highest equity market return over the years. More disclosures would be the answer. Removing highest NAV will lower the number of product offerings. In that case, customers should only buy FDs, but that also is subject to mis-selling."

An interaction with agents in the past did reveal the wrong impression given about the amount of equity exposure in the product and the duration of equity over the policy term. Either the insurers were misleading their agents or the agents misleading potential customers.

Some time ago, Birla Sun Life launched 'Foresight' with an offer to put your investments at the lowest NAV in the year and offer highest NAV for returns. The concept was catchy for the layman with the advertisement pitch of not worrying about the entry point in the market. The problem was the way three different calculations were compared to decide how much the customer gets at the end of the policy term. This was beyond the layman's understanding.

IRDA is also looking at traditional products with a low insurance component. According to the IRDA chairman, "The Direct Tax Code (DTC) will enforce a certain premium-to-sum-assured ratio. We want to ensure traditional insurance products comply with the new requirements."

Clearly, traditional insurance products in general are low in insurance component and some which have decreasing sum assured, offering sum assured as specific rate of return on the premium paid and insignificant sum assured, will be the first products that are on the IRDA list to be dropped.

The IRDA chairman is also against the LIC enjoying over 95% market share in annuity products. The IRDA exposure draft of pension products specifies that the customer be restricted to the same insurance company for both accumulation phase and annuity phase of the product.