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May 14, 2010updated 13 Apr 2017 8:53am

Regulators plunge India’s ULIP market in to limbo

Indias Insurance Development and Regulatory Authority (IRDA) and capital markets regulator, the Securities and Exchange Board of India (SEBI), have locked horns over the latters 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 countrys 22 private life insurers from launching any new ULIPs or accept premiums for existing ULIPs until the SEBI issued them a certificate of registration

By LII editorial

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.

 

UNIT-LINKED INSURANCE PRODUCTS

India – insurers impacted by SEBI order

 

Market share (%)*

SBI Life

18.64

ICICI Prudential

16.03

Bajaj Allianz

11.05

Reliance Life

9.24

HDFC Standard

8.5

Birla Sun Life

8.4

Max New York Life

5.95

Tata AIG

3.77

Kotak Mahindra

3.02

MetLife

2.85

Aviva

2.21

ING Vysya

2.02

Bharti Axa

1.13

Aegon Religare

0.31

Total

93.12

* Private insurers first eight months 2009-2010 fiscal year. Source: Securities and Exchange Board of India

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