IRDA To Take Up Issue Of SEBI Show Cause On ULIPs (04-Feb-2010)
Sebi''s show-cause notice on unit-linked insurance plans stating that these are products approved by the insurance regulator and are being sold for several years as insurance plans will soon get a response from the life insurance industry.
In Hyderabad insurance chiefs were invited for an International Association of Insurance Supervisors event where life insurers met with the Insurance Regulatory and Development Authority (IRDA) to the discuss the show cause notice served on them by Sebi. Since a number of CEOs were present, the issue was discussed with the regulator, said an official.
Sebi had dispatched notices regarding the issue to companies at different point of time. Some companies received the notice more than one week ago and few got it three days ago. Sebi has not attacked ULIPs as a category but has picked up individual plans which have been named in its letters to insurance companies. Some companies have received queries in respect of one product while others have been questioned about several of their products.
Some companies have discussed this matter and have been advised that their product is well within the definition of the Insurance Act, 1938.
According to a close source to the market regulator, Sebi does not feel this issue is between two regulators. But the insurance industry sees this as fight of the traditional rivalry between life insurers and mutual funds. Mutual funds has always complained against ULIPs as they feel that insurers are selling similar products and are allowed to pay much higher commission which directly results in banks and other distributors pushing mutual funds.
Life insurance companies on the other hand points out that they have already invested 25,000 crore out of which a part is invested in building infrastructure which includes branches across country and includes training for 30 crore insurance agents.
The battle turned bitter after Sebi expelled entry loads on mutual funds which meant that most of the money paid by the investor had to be invested in the fund. However, in life insurance, the commissions continued even though at a lower level.
Further, Sebi pointed out that the structure of ULIPs was similar to mutual funds and were in the nature of collective investment schemes and therefore the market regulator had sent notices last week to the life insurance companies asking them why they did not take sebi permission before selling ULIPs.
In the mean time, The life insurance council, an industry association of life companies made representation to the finance ministry for abolishing of the service tax on fund management charges in order to have a level-playing field for all the financial service companies.
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