IRDA to take up issue of Sebi showcause on ULIPs

05-Feb-2010

THE life insurance industry has decided to respond to Sebi's showcause notice on unit-linked insurance plans stating that these are products approved by the insurance regulator and are being sold for several years as insurance plans.

Life insurers met with the Insurance Regulatory and Development Authority (IRDA) to discuss the showcause notice served on them by Sebi. "Insurance chiefs were invited to Hyderabad for an International Association of Insurance Supervisors event. Since several CEOs were present, the issue was discussed with the regulator," said an official present in the meeting.

The companies had received notices from Sebi at different points of time. While some companies had received the notice more than a week ago, some had received a letter only three days ago. Sebi has not attacked ULIPs as a category but has picked up individual plans which have been named in its letters to insurance companies. Some companies have received queries in respect of one product while others have been questioned about several of their products.

Some companies have sought a legal opinion on this matter and have been advised that the product is well within the definition of the Insurance Act, 1938. Sources close to the market regulator said Sebi did not see this as an issue between two regulators. Companies regulated by Sebi, for instance, also sometimes receive queries from other regulators or agencies such as the Company Law Board. But the insurance industry sees this as a fallout of the traditional rivalry between life insurers and mutual funds. Mutual funds have for long complained against ULIPs stating that insurers sell a similar product but are allowed to pay much higher commission, resulting in banks and other distributors pushing mutual funds. Insurers on the other hand point out that life companies have invested over Rs 25,000 crore. A large part of this has gone towards building a distribution infrastructure which includes branches across the country and training for over 30-crore insurance agents.

The battle turned bitter after Sebi barred entry loads on mutual funds which meant that most of the money paid by the investor had to be invested in the fund. In life insurance, however, the commissions continued albeit at a lower level. Last week, the market regulator sent notices to life insurance companies, asking them why they have not sought Sebi permission before selling ULIPs. Sebi pointed out that the structure was similar to mutual funds and were in the nature of collective investment schemes.

Source : www.insuremagic.com