Insurance firms set to defy Sebi

To approach Irda for new Ulips

Several life insurance companies in the country are preparing to take on the markets regulator Securities and Exchange Board of India (Sebi) over unit-linked insurance plans (Ulips).

The insurers are working on new insurance-cum-investment schemes and they plan to approach their regulator, the Insurance Regulatory and Development Authority (Irda), for permission to launch these.

NEW ULIPS WILL:
 
# Fill gaps in existing portfolio

# Boos sales in second half of the year*

*As Irda takes 90 days to approve a product

This would be in defiance of the Sebi directive issued on April 13, which asked insurance companies to register with it before launching new Ulips.

While companies that Business Standard spoke to were unwilling to come on record on the issue, they confirmed working on new Ulips.

“As of now, the roadmap is insurers will go to Irda. If the insurance regulator does not approve, we will then decide on what to do, whether to register with Sebi before the matter is resolved,” said Life Insurance Council Secretary General S B Mathur. Life Insurance Council is the representative body of all life insurance companies.

Under the current norms, insurance companies are required to give details of any new product they intend to launch to Irda, which then clears the scheme. A plan is deemed to be approved if no questions are raised over it by the regulator within 90 days of filing.

Ulips were being regulated by Irda until April 9, when Sebi barred 14 insurance companies from selling or renewing these products. The Sebi order said any market-related product needs to be cleared by it, since it is the market regulator.

Irda, however, asked the insurers to ignore Sebi’s directive, arguing that only Irda could regulate insurance companies.

The government then stepped in to avoid a showdown between the two regulators. It advised the regulators to seek a legal remedy on the question of jurisdiction.

Later, Sebi withdrew its April 9 order, but asked the insurers to register with it ahead of launching new Ulips. The regulators, however, are undecided on which court they should approach for legal opinion.

With the stock markets showing signs of stability and the investors’ risk appetite growing, demand for Ulips has picked up. Insurance companies want to encash on the improved sentiments, especially in the second half of the financial year, when sale of their products usually goes up.

“The second notice from Sebi is only a clarification and not an order. Our earlier order asking insurance companies to ignore Sebi’s letter takes care of the clarification issued by the market regulator. Finance Minister had restored status quo ante on these policies. This is sufficient to understand that business will be carried as usual,” a senior Irda official said.

Besides, insurers are drawing comfort from a statement given by Minister of State for Finance Namo Narain Meena in Parliament last week.

“The Insurance Regulatory and Development Authority has reported that every life insurance company registered under the IRDA Regulations, 2000, can transact life insurance business, which includes unit-linked business,” the minister had said in a written reply in the Rajya Sabha.

“We have comprehensive plans but want to launch some innovative plans by June. As per our requirement, we will approach the insurance regulator for approval,” said the chief executive officer of a large private sector insurance company, which is among the 14 companies covered by Sebi’s April 9 order.

“It will take three-four months for the matter to be resolved. This is the time when we work on our products. Irda takes around two months to approve a product. If it is innovative with completely new features, it takes more time. We train our workforce, agents and sales team during the first half of the year and try pushing these products during the second half. We are working on policies and will approach our regulator to get it approved,” added a senior executive of another large insurance company.

Though state-run Life Insurance Corporation was outside the ambit of Sebi’s order, a senior executive at the company said the insurer was working on two-three new Ulips.

“Irda will take its time to approve them. We will be launching another set of new products in the coming weeks,” the executive added.

LIC has neither been served any notice nor banned from launching any products.

Sebi Executive Director K N Vaidyanathan had, however, said the remaining nine insurance companies were being investigated.

In recent years, Ulips have accounted for a bulk of new business, generating nearly 90 per cent of the premium income for the private players. In case of LIC, the share of Ulips in new business was around 65 per cent last year.

During 2009-10, insurance companies invested around Rs 75,000 crore in the stock markets and have together emerged as the largest domestic institutional investors.