IRDA wins ULIP battle: Govt to amend laws to revive sales

IRDA wins ULIP battle: Govt to amend laws to revive sales



: Insurance industry regulator Irda has emerged the victor in a high-profile tussle over the regulation of so-called unit-linked insurance plans or Ulips, with the government ruling that it and not the market watchdog Sebi would oversee the product.

The government is “clarifying by way of an explanation that life insurance business shall include any unit-linked insurance policy or scripts or any such instruments,’’ said a statement from the press information bureau. “This would set at rest all the issues regarding Ulips between the two financial regulators.’’





The government promulgated an ordinance late on Friday to amend four major laws that could revive the sale of Ulips and force the mutual fund industry to look for new avenues to get investors.



“This will completely end the uncertainty regarding unit linked insurance plans,’’ said Kamesh Goyal, chief executive, Bajaj Allianz Life Insurance. “Ulips have also turned extremely customer-friendly after recent measures taken by the regulator to bring down surrender charges.”





Irda and Sebi got into a legal battle over Ulips regulation after the markets regulator on April 9 banned 14 insurers from selling Ulips. Sebi withdrew the ban when bureaucrats brokered a truce, but only to revive it. Sebi moved the Supreme Court to club various public interest litigations against Ulips and resolve the issue of alleged mis-representation and the issue of jurisdiction.





The Supreme Court will have to take cognisance of the Ordinance when it hears the case on July 8. “The government’s clarification will enhance policy holder confidence as it settles the issue over regulation”, J Hari Narayan, chairman Irda told SundayET in an interview.



The ruling is a relief to existing policy holders who were unsure of continuing with the product and new investors were wary of buying them.





Ulips are hybrid products incorporating investment and insurance cover. They account for more than 85% of the portfolio for life insurers. Insurers can now sell new Ulips launched after April 9, 2010.





The government will amend the RBI Act, the Insurance Act, the Sebi Act and the Securities Contract Regulation Act to include Ulips, scripts or any such insttruments under the life insurance business. The Bill will be introduced in the monsoon session of Parliament, said a senior finance ministry official.





A high-level committee under the finance minister Pranab Mukherjee to would be set up sort out all issues over jurisdiction of hybrid products. Other members will include the finance secretary, secretary in the department of financial services and financial sector regulators.

Over the last few weeks, the Irda has tightened the norms for Ulips to raise the risk cover they offer and blunt Sebi’s criticism that Ulips are colective investment schemes as the risk cover is limited to 2% of the premium. It has also made it mandatory for insurers to offer a life cover with pension plans. The regulator has set July 1 as the deadline for implementing the new Ulip guidelines.





“The Irda had already started addressing some of the issues over which there were concerns from some quarters.Now with this ordinance the dispute itself has been resolved,” said SB Mathur, chief executive, Life Insurance Council. In fiscal year 2009-10, Ulips accounted for more than four-fifths of the total insurance premium of around Rs 2.60 lakh crore that was collected



SOURCE;THE ECONOMIC TIMES