Readability, standardize insurers’ values: SECP issues revised illustration format

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued a revised illustration format to improve the readability, standardize insurers’ illustrative values, and safeguard prospective policyholders from any deception.

In this regard, SRO 1088 (I)/2024 has been issued and is applicable on life insurance and family takaful products with savings components.

According to the details issued by the SECP, life insurance and family takaful operators use product illustrations to highlight the benefits of long-term financial protection and savings vehicles, typically lasting over 5 to 20 years. Hence, the product illustrations are an integral part of the sales process of life insurance and family takaful policies.

The revised requirements aim to enhance transparency in product illustrations through improved disclosures and making them simple for the understanding of potential policyholders by explicit disclosure of allocation charges, clearing mentioning key disclosures with simplified format and enhanced font size. Moreover, Companies have requested to reduce illustration scenarios from 3 to 2 and remove inflation-adjusted values, displaying only actual amounts allocated to policyholder accounts, SECP stated.

This directive shall apply to the illustrations of individual life insurance products, having term of more than 1 year, which offer cash value on surrender and/or maturity of the policy, which include but not limited to the following:

(i). participating policies such as with profits endowment/ anticipated endowment plans;

(ii). whole life plans;

(iii). investment linked plans; and

(iv). universal life plans.

For policies which are addressed in SECP Circular 2 of 2006, on Life Insurance Policies through withdrawal from Recognized Provident Funds, this directive shall apply along with the additional requirements for such illustrations mentioned in the said circular. The comparison of the proposed policy’s illustrative values with the situation if the premiums are not withdrawn but left to accumulate in the provident fund shall be presented on the first page of the illustration.

With effect from January 1, 2025 all insurers are required to provide “illustration” in both English and Urdu languages to the prospective policyholder which should be comprehensively explained to the prospect. The detailed format of Illustration Report in

English language is attached as Annexure A. In respect of illustration reports in Urdu language, insurers can refine the terms in Urdu, without compromising on the intent of the term(s) and the minimum content of the illustration report.

The SECP added that the illustration directive has been notified by the Commission after extensive consultation with life insurance and family takaful companies, the Insurance Association of Pakistan and the Pakistan Society of Actuaries. SRO 1088 (I)/2024 had been placed on SECP’s website and is accessible at https://www.secp.gov.pk/document/sro1088i-2024-directive-for-life-and-family-takaful-product-illustrations/?wpdmdl=52414.

Copyright Business Recorder, 2024