Insurers want to tap RGESS to push Ulip sales

Insurance companies are keen to offer fund(s) approved under the Rajiv Gandhi Equity Saving Scheme (RGESS) to potential policyholders for unit-linked insurance plan (Ulip). Even the insurance regulator is with the sector on this.

“We have recommended to the government to also consider the insurance sector for RGESS. Tax breaks should be available for all equity investors across instruments. It would be inefficient to discriminate between investors based on the instrument they invest in,” says Hari Narayan, chairman of Insurance Regulatory and Development Authority of India (Irda).

Insurance sector experts say when the idea is to get more tier-II/III capital into equities, it would be beneficial for the RGESS to include Ulips, as many small investors put money in insurance products.

Although there is not much clarity on how RGESS can be offered by insurance firms, insurers are pressing for it. After the Ulip guidelines came out in 2010, their sales, which contributed to nearly 90 per cent of insurance companies' revenue, slumped and have not recovered. And most insurers feel RGESS in Ulips will be a door opener for the product, which has seen very few takers in two years. Instead, insurers have seen higher sales of traditional insurance products such as endowment and moneyback plans.

According to a senior insurance executive, new products — especially the ones that offer tax benefits — always click with small investors. So, being able to offer RGESS will help insurance companies and Ulips, he says.

“The sector is very much interested in participating in RGESS but it will need to be modified a bit to suit the sector's needs,” says Amitabh Chaudhry, managing director and chief executive officer of HDFC Life Insurance.

For if RGESS is offered in the present form of Ulips, there will be contradictions. For instance, RGESS has a lock-in period of three years, while a Ulip has five years. Which one will investors adhere to? Second, RGESS qualifies for tax benefit of Rs 50,000 under Section 80CCG and Ulips get a benefit of up to Rs 1 lakh under Section 80C. Which section will investors claim?

According to G N Agarwal, CEO and chief actuary of Future Generali India Life Insurance, a fund qualifying under RGESS cannot be added to the existing basket of Ulips.

Insurers might have to launch a new Ulip, offering only RGESS for investment, for which the insurance regulator might relax the lock-in to at par with RGESS.

While Agarwal says the commission structure for the new Ulip might be similar to the one offered by all Ulips, a section feels the commission will need to be increased to be able to attract more policyholders.

Industry players also say the government should club the tax benefits and the section under which both RGESS and Ulips can get similar tax breaks.