Regulators’ tussle leaves life insurers worried

By Venkatachari Jagannathan, IANS,

Chennai : The turf war between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) over regulating unit linked insurance policies (ULIPs) seems to have put life insurers between the proverbial devil and the deep sea.

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While SEBI Friday night banned 14 life insurers from selling ULIPs without registering with it like mutual funds, the IRDA Saturday issued an order asking the life insurers to defy the former and continue selling ULIPs.

“Life insurers are the punching bag in the shadow boxing between SEBI and IRDA,” an industry official told IANS on the condition of anonymity.

The 14 life insurers banned by SEBI Friday from selling ULIPs plan to seek legal remedy on the issue Monday.

Industry officials not wanting to go on record also questioned the 10-year delay on the part of SEBI in coming out with its reservations about ULIPs.

According to industry officials the remaining nine life insurers, including Life Insurance Corporation of India, selling ULIPs will also be issued show cause notices by the SEBI.

Life insurers also pointed out that the SEBI ban does not give them any grace time to phase out ULIPs or take corrective actions.

They seem to have little clarity on what registration with SEBI would mean. Will it mean getting a certificate of registration or being subject to SEBI regulations pertaining to mutual funds?

It is the latter that the life insurers are fearing as it would affect their income stream in the form of various charges which are far higher than that of mutual funds.

“If registration involves being subjected to other regulations like mutual funds then would SEBI allow parity with the mutual funds when it comes to capital adequacy norms,” S.B. Mathur, secretary general, Life Insurance Council of India (LICI) told IANS Sunday.

With a meagre capital of around Rs.3,000 crore, the mutual fund industry manages a whopping fund having a size of Rs.700,000 crore, he said.

The IRDA in its Saturday order allowing the 14 banned life insurers to continue selling ULIPs has said the companies have an equity base of Rs.16,281 crore as on March 31, 2009.

The insurance regulator said that the SEBI order would cause the stoppage of all renewals of insurance policies already invested in by the public.

It may result in the forced premature surrender of insurance policies, causing substantial loss to the policy holder and to the insurers, destabilising the market and upsetting financial stability, the IRDA added.

The IRDA observed that in the year 2008-09, 7.03 crore ULIP polices involving a total premium of Rs.90,645 crore were in force.

Between April 1, 2009 and Feb 28, 2010, 16.7 lakh policies have been sold with a premium of Rs.44,611 crore.

“Life insurers have to invest their corpus as per the investment regulations of IRDA whereas there are no such strict norms for mutual funds. Further, mutual funds are not subject to any rural sales targets whereas life insurers have to sell a sizeable percentage of their total products in rural areas,” argues Mathur.

On the charges of absence of transparency in life insurance sector, Mathur said: “Nobody knows who owns a mutual fund company whereas everything is open in the case of life insurers.”

Life insurers have to bare their annual reports to public like the banks.

Asked about the complaint on high commissions paid to life insurance agents which affects the policy holders, he said: “Insurance needs to be sold. The retail base of mutual funds is very low. The new pension scheme (NPS) without any charges has got only 4,000 subscribers.”

However, one industry expert told IANS on the condition of anonymity that the insurance regulator does not have the expertise to oversee the capital market operations of life insurers and as such the field is best allowed to SEBI.