Fresh battle breaks out over Ulips

Sebi asks 14 firms to register before launching new plans; Irda rejects proposal.

The stage is set for a fresh regulatory war over unit-linked insurance plans (Ulips). A day after Finance Minister Pranab Mukherjee said there will be no restriction on the renewal and sale of these investment-cum-insurance products, the Securities and Exchange Board of India (Sebi) announced some restrictions.

In a statement issued this evening, the market regulator said 14 of the country’s life insurers — earlier banned from selling or renewing Ulips — would now require its approval to launch new Ulips. It said schemes that were in the market on April 9 will continue as usual, but the 14 companies will need to register with the market regulator to launch new Ulips.

Insurance Regulatory and Development Authority (Irda) immediately rejected Sebi’s circular. “The finance minister has already made a statement on the issue. Sebi does not have any jurisdiction on the matter and it was agreed the issue will be decided in a court of law,” an Irda official said.

While the order came within hours of an Irda team's arrival from Delhi, where they spent the last two days trying to deal with the controversy, officials from the regulatory agencies spoke to insurers and tried to comfort them. “We have been asked not to panic,” said the CEO of a life insurance company.

At a meeting between officials from the finance ministry and the regulatory agencies, it was decided insurance companies will not launch any new Ulips, senior officials said. But, there was no decision on asking the companies to register with Sebi.

The officials had held two rounds of talks in North Block on Monday, with the second sitting going on till late in the evening. It had also been decided the two agencies would jointly approach the Bombay High Court to seek a solution to break the regulatory impasse.

“It will take four-five days to prepare the joint application. Both the regulators were to meet again to decide on the contents of the application,” said a person familiar with the developments. Legal experts said it could take three-four months before a legal verdict would come.

However, in the immediate future, insurers do not expect any significant impact due to the ban on new launches. Insurance companies had re-filed almost all Ulips in December after Irda changed the charge structure of these products. In December, around 300 products were cleared.

Insurers said any product innovation cycle takes 3-6 months. “There are enough products to meet customer needs. Unless somebody was thinking of some innovation, the ban will not have any significant impact,” said Max New York Life Insurance Chief Financial Officer Sunil Kakkar.

“As far as new filings are concerned, we have not firmed up our plans. There was a major filing in December and we have products for almost all sets. Companies do require new products. If the ban is not lifted in another three-four months, it may affect our business,” said Sanjeev Pujari, SBI Life chief actuary.

Besides, for life insurers a bulk of the business is in the second half of the year and that is when they plan new launches.

FM FOR ZERO-LOAD FOR ALL PRODUCTS

The insurance regulator is facing renewed pressure to move to a zero-load structure — where companies pay the commission instead of the burden falling on policyholders, as is the case at present.

“Sebi’s decision to make mutual fund advisors the agents of customers rather that of the company whose products they sell would go a long way in protecting small investors. I believe India could set global standards by following a no load plus fee model for the entire financial sector to ensure a fair deal for all market participants. I hope all financial sector regulators would work towards this goal,” Finance Minister Pranab Mukherjee said at the market regulator’s Foundation Day function on Monday evening.