The Securities and Exchange Commission of Pakistan (SECP) has introduced comprehensive regulations for unit-linked business to ensure the protection of policyholders' interest as well as strengthening insurers' internal controls over investment policy and processes. The SECP has issued SRO.343(I)/2015 here on Friday to notify Unit Linked Products and Funds Rules, 2015.
The new rules have addressed broad product features from a regulatory perspective, such as minimum financial protection, premium indexation and maximum aggregate commission on unit-linked business. However, the primary focus of these rules has been on addressing the investment governance process of the unit-linked funds, net asset valuation methodology and the disclosure of investment risk to the insurance policyholders, sources added.
According to the new rules, all life insurers carrying out unit linked business shall offer the unit linked products having the minimum financial protection component (ie life insurance coverage). The policyholder shall have an option to avail the policy through level premium or indexation premium. All unit linked products shall have an Indexation option based on anyone of the following:
Automatic Default Option: Under this option, the basic or gross premium shall be increased with a fixed Indexation rate on compound or simple basis. However, insurers shall incorporate a reasonable level of Indexation. Indexation of Premium and Sum Cover: Under this option, both the premium and sum cover shall be increased with a fixed Indexation rate on compound or simple basis.
The Insurer in respect of their unit linked Bancassurance business shall ensure that the Bank's premium collection system is effectively deducting the indexed premium, and if it is not, shall take such action as is required to ensure that it shall start deducting the indexed premium within a period of not more than two year after the commencement date.
Minimum Term of the Regular Premium Individual Life Plans: No Insurer shall offer a unit-linked regular premium plan (saving) of a term shorter than 5 years through any distribution channel. All insurers offering unit linked products shall disclose investment risk, targeted asset mix and charges and product charges structure & Unit Pricing Methodology: Details of the product charges structure and unit pricing methodology shall be disclosed to all policyholders in the policy document, rules added.