Insurers say Ulips come under Insurance Act

Life insurance companies have replied to the notices issued by the market regulator, the Securities Exchange Board of India (Sebi), for selling unit-linked insurance plans (Ulips) under the collective investment scheme without Sebi’s approval.

Life insurers said they were selling Ulips, which had been approved under Section 2 (11) of the Insurance Act. The law, they said, allowed Ulips to be part of insurance. They said insurance was explicitly excluded from the collective investment scheme of Sebi under the Act. A large life insurer also sought to highlight the difference between a Ulip unit and a share, industry sources told Business Standard.

“The units issued in unit-linked insurance products do not fall within the definition of the term ‘security’ on account of their clear exclusion under the SCRA (Securities Contract Regulation Act) or even under the definition of the term ‘unit’ since these units do not form one undivided share in the assets of a scheme,” the letter said. The Insurance Regulatory and Development Authority (Irda) also quoted SCRA and said Ulips were neither securities not securities-related transactions under the law.

An insurance company said Ulip units were much more than the undivided share in case of a life insurance contract. “They include a death benefit which is linked to the premium paid and in case of unit-linked pension annuity contracts; they are based on traditional policies which do not issue any ‘unit’ under the said policies,” it said.

Sebi’s notices to 13 life insurance companies said the structure of Ulips was similar to that of mutual funds and was in the nature of collective investment schemes, which come under its purview. It had also written to Irda. In response, Irda questioned the market regulator’s notices to insurers on conceptual, legal and structural grounds.