Clouds of uncertainty over ULIPs
The controversy about Unit Linked Insurance Plans (ULIPs) has reached an inflexion point with SEBI on Friday banning of 14 of the 25 insurance companies from marketing ULIPs.SEBI's order does not mention insurance companies such as LIC, IDBI Fortis and a few other bank-sponsored life insurance companies.Based on data from the IRDA's 2008-09 annual report, ULIPs managed total funds of Rs.1.72 lakh crore as of March 2009. Insurers such as ICICI Pru Life, Bajaj Allianz, SBI Life and Birla Sun Life were the ones with the biggest ULIP assets.A rough calculation suggests that ULIPs could be managing close to Rs 2.3 lakh crore now, after accounting for the market appreciation and new premium collected, inclusive of LIC (about Rs.1.2 lakh crore).Ever since the launch of ULIPs by private insurers in 2003-04, there has been friction between mutual funds and life insurance companies.With SEBI banning entry loads on mutual fund schemes, which in turn led to MF agents upfront commissions going down to 0.5 per cent from the earlier 2 per cent, inflows into mutual funds declined sharply.In an interaction with Business Line, commenting on the ban, Life Insurance Council Secretary-General, Mr S. B. Mathur, said that it was unfortunate that SEBI had imposed this ban, but felt that the insurance companies would explore various possibilities to find an acceptable solution. IRDA is expected to issue a circular this regard and also may take up the matter with SEBI.We spoke to several insurance companies to have their view on this order and the majority of them felt that IRDA was more competent to comment on this. But a top insurance official on the condition of anonymity, raised the question of how claims of existing ULIP holders will be dealt with now. “If I am not allowed to accept his premium, if the death occurs, who will be responsible for (fulfilling) the insurance contract? Under Type I ULIPs, the fund value or the sum insured will be paid as death benefit.The ULIP is a unified contract, investment contract cannot be taken out separately and be subject to a certain regulator.”An insurance agent said : “SEBI's recent crackdown on upfront commission being paid to agents, being charged as expenses for arriving at the net asset value means that we are not going to get any (upfront) fee for marketing mutual fund products. With the ban on ULIPs, we will be completely thrown out of the financial intermediary business. This may impact our life very seriously.”
The controversy about Unit Linked Insurance Plans (ULIPs) has reached an inflexion point with SEBI on Friday banning of 14 of the 25 insurance companies from marketing ULIPs.SEBI's order does not mention insurance companies such as LIC, IDBI Fortis and a few other bank-sponsored life insurance companies.Based on data from the IRDA's 2008-09 annual report, ULIPs managed total funds of Rs.1.72 lakh crore as of March 2009. Insurers such as ICICI Pru Life, Bajaj Allianz, SBI Life and Birla Sun Life were the ones with the biggest ULIP assets.A rough calculation suggests that ULIPs could be managing close to Rs 2.3 lakh crore now, after accounting for the market appreciation and new premium collected, inclusive of LIC (about Rs.1.2 lakh crore).Ever since the launch of ULIPs by private insurers in 2003-04, there has been friction between mutual funds and life insurance companies.With SEBI banning entry loads on mutual fund schemes, which in turn led to MF agents upfront commissions going down to 0.5 per cent from the earlier 2 per cent, inflows into mutual funds declined sharply.In an interaction with Business Line, commenting on the ban, Life Insurance Council Secretary-General, Mr S. B. Mathur, said that it was unfortunate that SEBI had imposed this ban, but felt that the insurance companies would explore various possibilities to find an acceptable solution. IRDA is expected to issue a circular this regard and also may take up the matter with SEBI.We spoke to several insurance companies to have their view on this order and the majority of them felt that IRDA was more competent to comment on this. But a top insurance official on the condition of anonymity, raised the question of how claims of existing ULIP holders will be dealt with now. “If I am not allowed to accept his premium, if the death occurs, who will be responsible for (fulfilling) the insurance contract? Under Type I ULIPs, the fund value or the sum insured will be paid as death benefit.The ULIP is a unified contract, investment contract cannot be taken out separately and be subject to a certain regulator.”An insurance agent said : “SEBI's recent crackdown on upfront commission being paid to agents, being charged as expenses for arriving at the net asset value means that we are not going to get any (upfront) fee for marketing mutual fund products. With the ban on ULIPs, we will be completely thrown out of the financial intermediary business. This may impact our life very seriously.”
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