The regulator Insurance Regulatory and Development Authority (Irda) today asked the insurance companies not to provide "fabricated sense of security" through advertisements to allure customers towards Unit Linked Insurance Plans (Ulips) and other schemes, a move aimed at checking mis-selling of policies.
Issuing guidelines for advertising insurance products, the Irda also asked insurers to clearly state the underlying conditions for a guaranteed benefit from insurance cover.
"The brand names of insurance products must not use terms or phrases that convey a fabricated sense of security," Irda said in a circular.
It said the insurance companies need to clearly state the conditions (including cost of guarantee, charges) under which the guarantee operates.
"Where any insurance advertisement highlights the benefit of guarantees, a clear disclosure of the underlying conditions under which the guarantee operates must be made, wherever applicable," it added.
Also all life insurance advertisements should state the availability of underlying "Life Insurance Coverage".
With many life insurers not able to retain customers due to mis-selling, Irda had come out with a draft guideline last month saying that licence of an agent would be canceled if 50 per cent of the policies sold by him/her are not renewed annually.
Mis-selling refers to sale of a financial instrument without fully disclosing the pros and cons of it to an investor.
In today's circular Irda asked insurers to update on its website, every six months, the portfolio under Ulip scheme.
"This information on investment updates is to ensure that clear, actual and timely information is made available to prospects to make an informed financial decision," Irda said.
This is the second stringent Ulip circular from Irda after the government announced in June that Ulips come under the jurisdiction of Irda and not market regulator Securities and Exchange Board of India (Sebi).
In July Irda had issued new Ulip guidelines for policies to be sold from September 1. Under it, the lock-in period for ULIPs will be increased from three to five years and agent commission would be curtailed.
Industry experts feel the insurance regulator has beefed up its control over Ulips after Sebi said it should come under their purview since they part invest funds in equities.
Parliament has earlier this month approved the Securities and Insurance Laws (Amendment and Validation) Bill 2010, which clarifies that Ulips are insurance products and will be regulated by Irda.