FM confident of resolution of SEBI-IRDA spat on ULIPs soon  

June 8, 2010

 The government said today that the issue between the regulators will be resolved soon

The government today said it is confident of resolving the row between insurance regulator Insurance Regulatory Development Authority (IRDA) and market regulator Securities and Exchange Board of India (SEBI) over who should administer Unit-linked Insurance Plans (ULIPs).

“We will resolve this issue soon,” finance minister Pranab Mukherjee said at the launch of the Insurance Institute of India in Mumbai today. The six-storeyed building is equipped with modern amenities and hostel facilities for residential programmes. The entity will be an educational service provider for all insurers in the country.

The spat between SEBI and IRDA broke out in early April when the capital market regulator banned 14 life insurance companies from issuing ULIPs, which invest heavily in stocks and bonds. A day after, IRDA asked life insurers to ignore the order.

As the impasse continued, the finance ministry directed the regulators to jointly seek a legally-binding order from an appropriate court over jurisdiction of ULIPs.

The standoff between the regulators became a subject of ridicule by Deepak Parekh, a key adviser to the government, who said that the row had made India a “laughing stock.”

He had also hit out at the government for allowing the capital markets and insurance regulators to go to the courts, saying a rethink on their fight over jurisdiction on ULIPs would lead to a solution.SEBI and IRDA are yet to see eye-to-eye on regulating ULIPs.

The market watchdog has filed a petition in the Supreme Court for transferring various petitions against ULIPs. The issue of jurisdiction is obliquely referred to in these petitions.

“I understand that IRDA has taken some very positive steps in respect of regulations of ULIPs which are in the interest of both the insurance industry as also the policyholders,” Mr Mukherjee said.

Some of these measures like cap on charges, extending the minimum term of the policy to 5 years, bringing the concept of compulsory annuitisation in pension policies and the proposal of fixing the maximum limits of surrender charges have brought in the much-needed reforms in ULIP products, he said.

“I am sure that the insurance industry and IRDA would continue to bring in these reforms so that the interest of all the stakeholders is secured,” he said.

In order to put more money in the hands of investors, IRDA recently said that insurers cannot charge fee on surrender of a unit-linked insurance policy after five years.

Insurance companies used to charge a nominal fee to customers to withdraw their unit-linked policies even after expiry of lock-in period. However, policies withdrawn during the lock-in compulsorily attract a high surrender charge.

Putting stress on spreading awareness about insurance, Mr Mukherjee said that one of the important challenges is to generate the required level of awareness about the benefits of insurance to people—particularly those living in semi-urban and rural areas.

“It should be our endeavour to take all necessary steps to ensure the reach of insurance to (the) masses,” he said.

“I also take this opportunity to commend the role of the intermediaries specially the agents in the insurance industry who have contributed in ensuring that the insurance products reach every nook and corner of the country. With a force of around 30 lakh agents, it is a matter of pride that (the) insurance industry is perhaps the only financial services arm that reaches out to almost all the villages in this country. This is also borne out by the fact that 25% of the life policies i.e., approximately 1.5 crore policies every year are sold in the rural areas,” Mr Mukherjee said

When Moneylife asked IRDA chairman, J Hari Narayan if the ULIP issue would be resolved out of court, he said, “The finance minister has said that the matter will be resolved.” .— Moneylife Digital Team