In a major clamp down on insurers promising high returns to lure consumers, the Insurance Regulatory and Development Authority has mandated that companies cannot project more than 10 per cent return on investments in their policies.

IRDA's new code on standard practices, which would come into effect from April 1, prescribes that insurers can quote two views on rate of return -- a lower rate of 6.0 per cent and a higher rate of 10 per cent, in their official illustrations to customers directly or through agents.

The two rates would be set by the Life Insurance Council under IRDA every year in April or even more frequently, depending on the returns given by various debt instruments in the country.

"The initial rates to be used in projections are 6.0 and 10 per cent per annum. All insurers shall be free to use a lower illustrative rate than that is fixed, if so desired.

However, under no circumstance, the higher rates than those set by the Life Insurance Council shall be used," IRDA said in its directive.

Insurers also need to clearly specify if the policy offers 'guaranteed' or 'variable' returns.

In case of variable returns, the two rates of return can be projected along with a statement specifying that they are not the upper or lower limits of what a policyholder might actually get back.

IRDA also directed insurers not to make riders (options) compulsory at any time during the term of the policy.

Insurers also need to specify policyholders whether they have the right to participate in the surplus generated by the company.

Insurers also need to explicitly state within the illustration table the policy, fund management and other charges payable by customers, IRDA said.

The regulator also asked insurers to use simple, unambiguous and easily comprehensive language and avoid any statement in their brochures that would mislead the consumers.

The brochures also need to distinguish guaranteed and non-guaranteed benefits and state the quantum of benefits to consumers.

The new code of conduct for insurers comes after several complaints of companies using illustration of attaining very high returns to lure consumers.

While some insures might have booked hefty returns from their investments at some point of time, it cannot be used to project that the company would continue to offer such returns in future also.

The rate of return from debt and equity investments vary from time to time and an assured return cannot be projected by any insurer.

IRDA has made suitable changes in the Section 64J of the  Insurance Act of 1938 to include the new code of conduct.