HLCC to step into Irda, Sebi tiff over Ulips

To also discuss Swarup panel’s suggestions on financial stability.

Intervention is likely on the turf battle over unit-linked insurance plans (Ulips) between the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory Development Authority (Irda).

Sources told Business Standard the matter will be discussed in early March at the next meeting of the High Level Coordination Committee on Financial and Capital Markets (HLCC).

The HLCC is chaired by the governor of the Reserve Bank of India and has top officials of Sebi, Irda and the pension regulatory body, besides representatives from the Union finance ministry.

The committee is going to discuss this, along with other issues such as the Swarup panel’s recommendations on financial stability and moving towards a no-load structure.

Sebi has sent a showcause notice to almost all life insurance companies, including the market leader, Life Insurance Corporation of India (LIC); Max New York Life, Aviva, Reliance Life, Bharti Axa Life Insurance and Bajaj Allianz Life Insurance are to get notices.

They have all been asked to explain the reason how they decided to market a collective investment scheme without prior approval from Sebi. Sources said all insurance companies will receive the showcause notice over the next week.

“In the notice, Sebi has said that under Ulips, we are collecting money from the public and investing in the stock market, and the risk on investment is passed on to the investors.

The methodology of calculating net asset value resembles those of mutual funds, so it becomes a collective insurance scheme,” said a senior executive of a life insurance company.

However, R Kannan, member, actuary, in Irda says: “All insurance products in the market are approved by Irda and (this one) is well within section 2 (11) of the Insurance Act.”

Ulips are insurance products where a policyholder has the flexibility to chose his equity and debt mix. There is a confusion in the interpretation of two sections of the Sebi Act, 11 AA and 12(B). The former appears to allow entities to enter into a collective investment scheme without approval from Sebi, while the latter appears to require the opposite.