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IRDA wins the battle to regulate ULIPs

It’s final. The government has decided that the ULIP turf war will be decided in favour of IRDA.

The government has brought down curtains on the two-month long tussle between two regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the Insurance Regulatory and Development Authority (Irda).

Ulips account for more than 50 per cent of the life insurance business in the country. The money collected is invested in equities.

An amendment favouring Irda over the Securities and Exchange Board of India was signed by President Pratibha Patil on June 18.

On Friday, the law ministry issued an ordinance amending the RBI Act 1934, Insurance Act 1938, Sebi Act 1992 and Securities Contract Regulations Act 1956, clarifying that life insurance business will include any unit-linked insurance policy or scripts or any such instruments. This has thus settled the issue of regulating Ulips.

The ordinance is also likely to nullify a case filed in the Bombay High Court by an investor seeking to get clarity on the jurisdiction of Ulips. A public interest litigation filed in the Allahabad High Court on mis-selling of Ulips is scheduled to be heard on July 8.

The insurance regulator, headed by J Hari Narayan, now plans to come up with new guidelines on this investment- cum-insurance product on June 21, an Irda official said. Irda will now approve all new Ulips.

Of course, the issue wasn’t really jurisdiction, to most of us. It was that SEBI was a better regulator, and that ULIPs have stiffed people all along. And they continue to do so.

ULIPs collected 46,000 cr. of premium last year, and the commissions will be a reasonably big chunk of it. Plus, it contributes to pseudo-employment. So taking it out won’t be very easy. Still, it’s unproductive – money stolen of our pockets really – and such avenues, like real estate broking, have only resulted in high transaction costs (which, to the economist, is highly displeasing). Deepak Parekh of HDFC – which owns both a mutual fund AMC and an insurance company – even said that ULIP commissions needed to be slashed.

Where India is definitely going is – you will have to pay advisors for advise, and commissions will not be built into products. What that means is a) you can do the work yourself and pay nothing or b) you can get someone to do it for you and pay something.

But till that happens, IRDA will dictate ULIPs. As I mentioned in the Direct Tax Code update, you will be missold ULIPs like nobody’s business till March 2011. I suggest you charge for every call received.

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