Ulip row: Distributors field calls, put applications on hold

Since Saturday, Krishna Chokhani, a Mumbai-based insurance agent, has been getting calls from worried policyholders of unit-linked insurance policies (Ulips). “With both regulators standing firm, investors are anxious if they will suffer,” said Chokhani.

In Jamshedpur, the story is no different. “Some of my high net worth clients, who put in over Rs 1.5 lakh annually in Ulips, were anxious to know if their investments are safe or not. Many of them wanted to know if surrendering the policy made sense,” said a Jamshedpur-based insurance agent.

In fact, on Monday, the first working day after the Securities and Exchange Board of India (Sebi) order banning some companies from selling Ulips, most distributors put fresh applications on hold. “Some insurance companies told us that they were filing for a stay order and hence would not take applications in the interim. We told investors to wait for some time,” said a distributor, who did not wish to be quoted.

Since Friday, when Sebi fired the first salvo by banning 14 insurance companies from selling or renewing Ulips, investors have found themselves dragged into a battle of turf between Sebi and the Insurance Regulatory and Development Authority (Irda).

The anxiety got accentuated when Irda responded almost after a day and issued a statement late Saturday allowing the 14 companies to conduct their business as usual.

Chokhani, who fielded more than 30 queries in the last two days, said investors were particularly keen to know if fresh investments or annual premium payments would be accepted.

Distributors tried to soothe the nerves by sending Irda’s communication to insurance companies to their clients.

A top executive of a private sector insurance company said a few customers had contacted the company. “They wanted to know why this issue cropped up. Importantly, they are asking if insurance companies will need permission from Sebi for policies.” Investors feared that if old policies had to go for Sebi clearance, their money might get stuck for some time.

Distributors feared a major source of their revenue would be hit if Ulips were to come under Sebi's ambit. Independent financial advisors, or IFAs, who are already smarting over income loss due to Sebi’s ban on entry load, are more scared. They fear that the stock market regulator may reduce their commission, making selling the product unviable. Many of them shifted from selling mutual fund schemes (after the load ban) to insurance products because of the higher margins.

Most agents are blaming the mutual fund industry for the fracas. Babli Kohli, a New Delhi-based investor, was told by her insurance agent that mutual fund companies were pushing for this step after Sebi banned entry load on mutual fund schemes.

“But the agent said the investor base of insurance was too large for any regulator to enforce a ban on Ulips,” Kohli said. The government, meanwhile, has asked the regulators to fight it out in the courts.