Securities and Exchange Board of India (Sebi) has banned 14 private Insurance Companies (including players like SBI Life Insurance, ICICI Prudential Life Insurance, Tata AIG Life Insurance and Reliance Life Insurance) from issuing new Unit-linked Insurance Plans or Ulips. They have however not ordered state owned player, LIC. The order is not applicable on the existing Ulip products in the market.
Most Insurance Companies’ major (as high as 70%) business premium comes from Ulips. The birth of the Sebi order goes back to the feud between MFs and Insurance Companies when the Insurers started issuing Ulips (over 5 years back).
Ulips akin to mutual funds (MFs) due to investment component flooded the market giving the product stiff competition. Insurers gave huge commissions to insurance agents to market ulips which provide insurance and investment for the insured and are also market-linked.
This was evident during 2005-08, when in the bullish market lead MFs to lose business to Ulips.
There was turf war in December 2009 – January 2010 (between Sebi and Irda) regarding the jurisdiction of ULIPs. Sebi had issued the show cause notices to 14 insurance companies for not registering with them. One of the main arguments for Sebi was that although a ULIP is an insurance product which comes under IRDA, part of it is also an investment product which should ideally be regulated by Sebi.
Thus on Friday 9th April 2010, Prashant Saran, wholetime member of Sebi passed the order putting ban on Ulip products by 14 Insurers. He said, “I hereby direct the entities…not to issue any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new or additional subscription for any product (including Ulips) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from Sebi”.
In his order that ran into 11 pages, Saran said the insurance entities by their own admission had stated that there were two components of Ulips — an insurance component where the risk vests with the insurer and an investment component where the risk lies with the investor.
“This establishes conclusively that Ulips are a combination product and the investment component needs to be registered with and regulated by Sebi,” he stated.
List Of 14 Life Insurance Companies banned are:
- SBI Life
- ICICI Prudential Life
- Tata AIG
- Reliance Life Insurance
- Aegon Religare Life
- Aviva Life
- Bajaj Allianz
- Bharti AXA
- Birla Sunlife
- HDFC Standard Life
- ING Vysya Life
- Kotak Mahindra Old Mutual Life
- Max New York Life
- Metlife India
IRDA’s response on Sebi’s Ban order
Policy holders of the Unit Linked Insurance Products (ULIPs) offered by different insurance companies are assured that these policies are safe and secure”, said IRDA chairman J Hari Narayan in a release that followed market regulator Sebi banning such schemes of select companies last night.
He further said that IRDA will take up the matter “expeditiously in the appropriate forum in accordance with the law.”
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Tags: Aegon Religare Life, Aviva Life, Bajaj Allianz, Bharti AXA, Birla Sunlife, HDFC Standard Life, ICICI Prudential Life, ING Vysya Life, Kotak Mahindra Old Mutual Life, Max New York Life, Metlife India, Reliance Life Insurance, SBI Life, TATA AIG