- Wealth PMS (50L+)
On Friday, SEBI issued an order banning 14 companies from issuing any more ULIPs, with immediate effect. SEBI full time member Prashant Saran said in the order that ULIPs had an investment component similar to mutual funds, and therefore are securities that are regulated by SEBI; the insurers must take SEBI’s permission before marketing them.
SEBI had earlier to Insurers asking them why it shouldn’t regulate them. They replied with various points, each of which was countered by Saran:
|Insurance contracts are exempt from SEBI Regulation||ULIPs have both insurance and investment. We regulate the investment part.|
|ULIPs are not “securities”||Oh but the investment part is just like a mutual fund, which is a “security”|
|Mutual funds are transferred freely but ULIPs are not||Bull. Open ended funds are bought and sold only from the issuer; same as ULIPs.|
|ULIPs are not owned by Trusts like Mutual funds||Doesn’t matter; SEBI can regulate any pooled investment vehicle where the investor has no day-to-day control over the management of the money|
|ULIPs have an insurance part that is “predominant”||Utterly misleading. Nearly all ULIPs take only 2% of the annual premium for insurance – how can it be “predominant”?|
Keeping this in mind, these companies must not sell fresh or additional subscription to ULIPs. The companies are:
a. Aegon Religare Life
b. Aviva Life
c. Bajaj Allianz Life
d. Bharti AXA Life
e. Birla Sun Life
f. HDFC Standard Life
g. ICICI Prudential Life
h. ING Vyasa Life
i. Kotak Mahindra Old Mutual Life
j. Max New York Life
k. Metlife India
l. Reliance Life
m. SBI Life
n. TATA AIG
Absent from the list is LIC. But SEBI has told Mint that LIC will be included soon, and any others that aren’t part of this list.
IRDA, the Insurance Regulator is miffed that their turf is being encroached on. In a quick weekend reply – and this is remarkable for a regulator that is largely sleeping even during the week – IRDA has told insurers to go sell whatever they want freely, with no heed paid to SEBI, Prashant Saran, or to customers. Okay, they had to remove the “customers” part. Their argument is that if ULIPs don’t keep conning customers, the industry will have problems. Yeah, right.
The IRDA observes that in the year 2008-09, 7.03 crore ULIP polices involving a
total premium of Rs.90645 crores were in force. Further, as on February, 2010,
during the period 1-4-2009 to 28-2-2010, 16.7 lakhs policies have been sold with
a premium of Rs.44611 crores. It is also observed that the 14 insurance
companies have an equity capital of Rs.16281 crones as on 31st March, 2009.
The observance of the above referred SEBI order would cause the stoppage of
all renewals of insurance policies already invested by the insuring public, may
result in the forced premature surrender of insurance policies causing substantial
loss to the policyholder and to the insurers. The effective stoppage of the sale of
the said products will cause a complete drying up of the revenue flows to the
insurance companies which could disrupt the payment of benefits on maturity, on
death and on other admissible claims, putting the policyholder and the general
public to irreparable financial loss. The financial position of the insurers will be
seriously jeopardized thus destabilizing the market and upsetting financial
The mentioned direction of the SEBI to insurance companies not to raise money
by way of new or additional subscription apart from other restrictions will
seriously jeopardize and adversely the interests of the policyholders and the
interests of the insurers.
The IRDA, in the light of the above , is satisfied that the order of the SEBI
mentioned above will bring the insurance industry to a standstill which would not
be in public interest and would be detrimental to the interests of the policyholders
and prejudicial to the interests of the insurers.
Therefore, in exercise of the powers vested in the Authority under Section 34(1)
(a) and (b) of the Insurance Act, 1938 , and after due consultation with the
members of the Consultative Committee , all the 14 insurance companies which
are mentioned in the order of SEBI are directed to note that notwithstanding the
said Order of the SEBI, they shall continue to carry out insurance business as
usual including offering , marketing and servicing ULIPs in accordance with the
Insurance Act, 1938, Rules, Regulations and Guidelines issued thereunder by
IRDA is largely a bunch of suck-up-to-industry losers, and have not even batted an eyelid while insurers took upto 100% commissions, or even 65% commissions. They should be dismantled and SEBI should regulate everything. Not that SEBI is the best, it could get better; but it’s definitely head and shoulders above the blind-bat behaviour of IRDA.
But given that LIC will be involved, and LIC has just rescued a couple of government IPOs, I have very little hope that SEBI will prevail. I think they are more fair to investors, but when did fair matter when it comes to insurers.