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IRDA showed its concern on LIC for being the only provider of annuities. Insurance Regulatory and Development Authority also expressed that the LIC is exposed to the increasing risk as the people require annuities. IRDA chairman said that LIC is the only player in the insurance sector that provides annuities. . Starting in 2019, when a huge amount of money will be released out of the new pension scheme (NPS) for providing annuities, there will be a burden on LIC, unless, more life insurers get engaged in managing annuities.”New set of guidelines was released a few months ago in which it was said that pension companies should sell annuities to their customers. An annuity is a pension product that gives regular payout against payment of a lump sum or regular premium (accumulation phase), and in return, the insurer provides you a periodic income at a certain rate of interest, which is guaranteed for life. Annuities are a risky business because a life insurer has to not only take risk on interest rates, but also, bear the risk of the policyholder living too long. As a result, most private insurers were active only in the accumulation phase of the pension policy, while a few offer very low annuity rates; therefore, policyholders have to buy annuities from LIC. Therefore, LIC controls 95 per cent of the annuity market. Pension fund regulatory and development authority (PFRDA) have just announced the names of six life insurance companies for providing annuities to NPS customers. So, customers can choose from the six companies. The six life insurers announced are LIC, SBI Life, ICICI Prudential Life Insurance, Bajaj Allianz Life Insurance, Star Union Dai-ichi Life Insurance and Reliance Life Insurance. IRDA made it mandatory that same insurance companies will provide annuity phase to the customers who sell the pension product to them. However, a chief executive officer of a private life insurer said, “This move does not benefit the customer if the insurer is giving low annuity rates because there is no option to change an insurer for the annuity phase.”“Annuity rates offered by LIC are not sustainable on a long-term basis,” said P Nandagopal, managing director and CEO of India First Life Insurance. Under the provisions of the NPS, a maximum of 60 per cent of corpus accumulated at the time of exit, normally on attaining the age of 60, can be withdrawn, while a minimum of 40 per cent corpus has to be utilized for purchasing an annuity from one of the six empanelled annuity service providers. SB Mathur, secretary-general of Life Insurance Council, said, “Annuity business in India is less riskier, compared with the west as more than 75 per cent of the products are sold as return on corpus.”
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