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| Insurance companies say no to bundling with MFs | |
| Bs Reporter / Mumbai September 12, 2008, 3:52 IST | |
Move seen as countering fund houses' plan to sell life covers.
Customers will no longer get insurance covers bundled with mutual funds and many savings and investment products offered by banks. They may, however, continue to get insurance with credit cards and home loans.
After a recent dispute with mutual fund companies, which wanted to collect insurance premium by hawking policies along with their schemes, life insurers on Thursday decided to end the system of bundling on a host of financial products.
The decision taken by the Life Insurance Council, a self-regulatory body, is significant since some of its members have a common parentage with asset management companies.
At present, Reliance Mutual Fund and Birla Sun Life Mutual Fund, which were offering systematic investment plan (SIP) products with insurance policies, will stop offering the cover.
“We had a discussion within the (ICICI) group and decided that an insurance cover should not be bundled with mutual fund schemes,” said ICICI Prudential Life Insurance Managing Director Shikha Sharma. ICICI Bank and Prudential of the UK, which are partners in an AMC and life insurance venture, have so far stayed away from bundling products.
“As an industry, we have developed a consensus that we will not offer insurance covers on savings and investment products offered by entities that will directly compete with us. However, we will continue to offer insurance covers on credit cards, loans and liability products and those products, which do not compete with our products,” said SB Mathur, secretary general of the Life Insurance Council.
For long, AMCs have complained of life insurers invading their turf with unit-linked insurance plans, which have a predominant equity bias. Life Insurance Council data showed that over 80 per cent of the business generated by life insurers came from Ulips and made them the largest domestic institutional investor in the stock market. During 2007-08, life insurance companies invested Rs 55,000 crore in equities, compared with Rs 53,400 crore by foreign institutional investors and Rs 16,300 by mutual funds.
Fund houses under the aegis of Association of Mutual Funds in India (Amfi) last month approached market regulator Securities and Exchange Board of India to permit them to sell insurance products to their investors and collect premium from them.
At present, regulations bar AMCs from venturing into this area. The head of a financial conglomerate said a part of the reason for the move was to keep mutual fund agents gainfully employed as equity funds were not gaining interest due to the stock market volatility.
The insurance companies, however, saw it as a counter-offensive from the mutual fund industry and decided to oppose bundling of products. Insurers, however, defended the move. “There are various risks associated in allowing mutual funds to sell insurance covers. First, the products will be sold by people who are not qualified to sell. This will increase the chance of misselling. Two, mutual funds will sell insurance policies of an insurer whose name will not be known to the policyholder. The introduction of the product has caused confusion and can lead to negative selection (as many not eligible to be insured will get covers),” said Reliance Life Insurance CEO P Nandagopal.
Insurance Regulatory & Development Authority (Irda) had also said fund houses desiring to sell insurance products should get a licence from Irda.
Life insurers, which had approached Irda, had argued that the present insurance regulations require them to maintain a solvency margin of 150 per cent, which is much higher than the capital requirement norms for fund houses.
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