The Centre has amended as many as four laws to take the controversial unit-linked insurance plans (ULIPs) out of an ugly courtroom spat between the stock market regulator and the insurance regulator.
And now, the Insurance Regulatory and Development Authority (IRDA) appears set to overhaul ULIP guidelines, industry sources said on Sunday.
A weekend Ordinance by the Centre amended the RBI Act of 1934, the Insurance Act of 1938, SEBI (Securities and Exchange Board of India) Act of 1992 and the Securities Contract Regulations Act of 1956 to keep ULIPs within the life insurance business.
“The ordinance aims to resolve the issue of jurisdiction but IRDA may come up with guidelines to ensure adequate insurance cover with Ulips so that they do not look more like an investment product,” said a senior official at a financial institution which has operations in both mutual funds and insurance.
“It may also bring down the commission structure for Ulips.”
At the heart of the spat between SEBI and IRDA was the business of selling Ulips loaded with mutual fund investments in a manner that sold risky investment products as safety-oriented insurance products while yielding high commissions to insurance sellers, including banks.
In the ten weeks between April 9 (when SEBI passed its first order banning 14 insurance companies from selling Ulips) to June 19, insurance firms have faced some uncomfortable moments.
IRDA changed a few guidelines on May 3, making the minimum policy term for all individual products to five years and asking all top-up Ulip payments to have an insurance cover with effect from July 1.
Experts expect stronger terms over the next few days.
IRDA officials may have scored a point, but experts within the industry feel that insurance companies will have to work more responsibly.
SEBI may appear to have lost this battle but experts feel this may lead the insurance regulator to stem the wrong practices – and especially crack down on unfair commission payments.
“Earlier this year the finance minister said that all financial sector regulators should aim towards a no-load regime and IRDA may take steps on those lines,” said an industry insider who did not want to be identified.