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ULIP holders get Sandwiched between SEBI and IRDA war

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What would a mother do when her two children are fighting on a single piece of chocolate? Let them solve the issue internally? Or whether the mother will step in with the mediating decision to resolve the conflict?

I guess… most of you will agree with the latter initiative to be taken by the mother.

However, that’s not the case to be over here. In the conflict between the country’s top two regulators – SEBI (Capital market regulator) and IRDA (Insurance Regulator) – on the simmering issue of holding governing rights over unit-linked insurance products (ULIP) – a market linked insurance product; the government has left the warring regulators to sort out the issue internally.

insurance-ULIP

On Friday, the SEBI passed a stunning order of banning 14 life insurance companies involved in serving ULIP products, on the ground that they were akin to mutual funds and may need to obtain registration from SEBI to proceed further with it.

The 14 insurers among the list of companies banned by the SEBI from selling ULIPs include

  1. Aegon Religare Life Insurance Company Limited
  2. Aviva Life Insurance Company India Limited
  3. Bajaj Allianz Life Insurance Company Limited
  4. Bharti AXA Life Insurance Company Limited
  5. Birla Sun Life Insurance Company Limited
  6. HDFC Standard Life Insurance Company Limited
  7. ICICI Prudential Life Insurance Company Limited
  8. ING Vyasa Life Insurance Company Limited
  9. Kotak Mahindra Old Mutual Life Insurance Limited
  10. Max New York Life Insurance Co. Limited
  11. Metlife India Insurance Company Limited
  12. Reliance Life Insurance Company Limited
  13. SBI Life Insurance Company Limited
  14. TATA AIG Life Insurance Company Limited

ULIP is saving-cum-investment product that offers the option of life cover along with market liked returns. These products are increasingly gaining popularity among the investors on account of its multi-purpose catering of life cover and equity market linked returns both. Additionally, they also provide Tax savings, so they could very called All-in-One Policies.

However, SEBI’s contention is that ULIPs are not pure insurance products and such products are coupled with investment products which fall under its purview of regulation. The investment component of the ULIPs, which ultimately finds its way into the equity markets, is in the nature of mutual funds which falls under the jurisdiction of SEBI’s governance.

However, the spat does not end over here. In a reaction to the SEBI order, IRDA retaliated on Saturday by invoking its power under section 34(1) of the Insurance Act, directing insurance companies to disregard the order from SEBI and proceed further with their business as usual.

As pointed out at the start of this post, the parent should come ahead and resolve the issue if the fight is getting out of bounds among the two children. A drama involving as important an issue of conflict as this requires a prompt redressing from the highest quarters as the Finance Ministry or even the PMO, where stakes of gullible public are involved due to no fault of their own.

My View:

The spat between the top two regulators is invoking a comical sequence of events in front of the world regarding the misplacement and dichotomy aspect of the Indian law. The tragic drama initially involved a ruling passed by SEBI authorities under the SEBI Act. However, the same ruling has been subsequently quashed by the IRDA under Insurance Act.

The spat between the SEBI and IRDA could adversely impact the interest of policyholders and insurers if the uncertainty prevails for a longer period of time. The coming week could pan out as a high voltage event if the regulators continue to take potshots against each other and in the process sandwich the sentiments of policyholders.

What’s your view? Is SEBI right in its latest directive to ban ULIP selling insurers?

  1. Diala Bank says

    This is really nice and informative.. if anybody want to know more about banks and banks services than they should visit:http://www.dialabank.com/life-insurance.cfm hope it will help you more.
    Thanks

  2. pardha says

    i want SEBI to regulate the things happening in the banned firms instead of banning them which effect not only them but also gullible customers

  3. Srikanth Matrubai says

    SEBI has at last woken up to stop the DAY LOOT carried by Insurance Companies through ULIPs. They were literally looting the hard earned money of the gullible public by the open mis selling.
    Why has the LIC ULIP not stopped by SEBI?. A clear case of double standards. Just like Mutual Funds, SEBI should remove the entire ‘commission based structure’ in the Insurance too and also allow investors to ‘Directly’ take the Insurance products themselves.

  4. sagar says

    A consumer is paying his hard earned money as premium to cover the risk of his life and his payment is subjected to market risk by the insurance companies. I think IRDA should have the answer to this question, Does the consumer practically feel relieved of one risk (life risk) by hiring another risk (Maturity amount), as expected by the policy makers? Isn’t it the right time to to ask the investors and admit that ULIP are not insurance products?

    1. Viral says

      Hello Sagar,

      It was always clear from the starting that ULIPs are not pure insurance products. ULIPS are insurance + Investment products.

      In fact, I feel that most of the ULIP products are mis-marketed by being sold as insurance products by the distributors/agents to the gullible investors. It is more of a case of lac of knowledge among investors, feeding on which are ULIP agents.

      A common sense perspective would be to go for pure term insurance where risk needs to be covered. At the same time, it could be MF investments where investment is the perspective.

      In fact, even ULIPs can form as good products for long term investors with over 6-8 years perspective, where investment risks are well mitigated over longer horizon along with insurance cover. But, more importantly, it should be informed decision by the investor.

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