Regulators plunge India’s ULIP market in to limbo

India’s Insurance Development and
Regulatory Authority (IRDA) and capital markets regulator, the
Securities and Exchange Board of India (SEBI), have locked horns
over the latter’s move to impose its authority on unit-linked
insurance products (ULIP).

The SEBI sparked confusion in the
market on 9 April when it issued an order restraining 14 the
country’s 22 private life insurers from launching any new ULIPs or
accept premiums for existing ULIPs until the SEBI issued them a
certificate of registration.

The SEBI argument is that, in many
instances, by far the largest portion of ULIP premium income is
invested into mutual funds of which it is the regulator. The ULIPs
of the 14 insurers were found to be “akin to mutual fund schemes”,
said the SEBI in the order.

Referring specifically to a ULIP of
one of the 14 insurers, the SEBI noted that, for a sum insured of
INR1.5m ($34,000), an annual premium of INR150,000 is collected
over 10 years. The premium allocated for insurance out of this is
INR7,500 in the first year and INR3,000 in subsequent years.

The SEBI continued that the annual
premium for a 10-year term life product for an identical sum
assured by the same insurer is INR3,342. Hence, stressed the SEBI,
in the ULIP the insurance component is 2% of the premium paid. The
SEBI added that products offered by other 13 insurers follow a
broadly similar pattern.

The IRDA responded to the order by
calling on insurers to ignore it. Reacting to the stand-off
situation, the government intervened and, partially rectifying the
impasse, the SEBI issued a statement on 13 April in which it stated
that only ULIPs launched by the14 insurers after 9 April are
covered by its order. The IRDA in turn agreed not to issue licences
for new ULIP products.

The government also urged the IRDA
and the SEBI to seek a ruling on jurisdiction over ULIPs from an
appropriate court which led to the SEBI petitioning the Supreme
Court for a ruling. The court responded by issuing notices on 30
April to the IRDA, the 14 insurers involved and the government
instructing them to respond to the SEBI’s petition by 18 July when
the next hearing will be held.

Introduced in 2001, ULIPs have
grown to become a major portion of private insurers’ new business
in India. In the financial year to March 2008, the IRDA reported
that ULIPs accounted for 88% of total private insurer sector
premium income, a level which fell slightly to 86.8% in 2008-2009.
ULIP investments are generally weighted equally between equity and
interest-bearing assets.

ULIPs represent a far smaller
portion of state-owned Life Insurance Corporation of India’s (LIC)
premium income. The IRDA reported that ULIPs represented 22.1% of
LIC’s premium income in 2008-2009.

For India’s life industry as a whole, ULIPs accounted for
INR906bn, or 41% of total premium income in 2008-2009.

Sign up for our daily news round-up!

Give your business an edge with our leading industry insights.

Sign up