Finance minister Pranab Mukherjee has finally stepped in to provide some clarity on the ongoing feud between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA). He has said that both the regulators have agreed to maintain the status quo that existed before SEBI’s ban on 14 life insurers from raising funds for unit-linked schemes.
Although the arrangement is temporary, Mr Mukherjee has provided some relief to life insurance companies.
“Policyholders of unit-linked insurance plans (ULIPs) offered by different insurance companies are assured that these policies are safe and secure and the matters arising out of the recent orders of SEBI will be addressed expeditiously in the appropriate forum in accordance with law,” IRDA has said on its website.
Before Mr Mukherjee’s decision, Moneylife had spoken to various independent financial advisors (IFAs) and received a mixed bag of reviews from both policy-holders and the distribution community.
“Investors have panicked. We have asked our clients to hold on and explained the position. Clients initially came to us with the intention of closing funds,” said Ramesh Bhatt, a Chennai-based IFA and chief executive of Aniram, a financial services firm.
“Currently, we are not going ahead with our existing prospects. We are waiting for the dust to settle down. We had clearly positioned our products. It has created unnecessary disruption in the market,” said Thiru Murugan, a financial consultant with Wealth Creation & Management Services.
Another certified financial planner, Vivek Rege of VR Wealth Advisors, said that investors will not be impacted. Many analysts believe that a ban on sale and renewal of ULIPs sold by all insurance companies will lead to Rs75,000 crore being drained from the stock market.
But many insurance companies disregarded SEBI’s order and went along with their usual business. Call centres manned by insurance companies were receiving numerous calls today due to SEBI’s decision. An official from Aegon Religare confirmed that even though it was business as usual, many ULIP investors called to ask about their investments.
While some distributors were advising their clients not to panic, a few others were saying that ULIPs were largely mis-sold by distributors, agents, insurance firms and IRDA. “It is a highly mis-sold product in the country. There is no regulation. The regulator, the insurance companies and the distributor, all are responsible. They are all giving projections on returns based on past performance, which is not correct. It is not an appropriate product for the investor,” said Harish Mohan, managing director, Time Financials.
Many players could not figure out why the Life Insurance Corporation of India (LIC), which dominates more than 50% of the life insurance market, was spared the ban. “It is a right decision by SEBI. LIC’s ULIP products should also be banned. The seven-year highest NAV (net asset value) product launched by LIC is neither profitable for investors nor does it provide long-term insurance cover as it is restricted to ten years. Charging investors by cancellation of units is an injustice to investors,” a reader named Sadanand Thakur had commented on the Moneylife website, on one of our earlier stories related to ULIPs.
As of now, the status quo continues. But if there is a long-drawn battle in the courts over ULIPs, the regulatory war may have investors caught in the crossfire. — By Ravi Samalad and Aaron Rodrigues