SEBI bans 14 insurers from issuing ULIP

LIC Building Chennai

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Market regulator SEBI has banned 14 life insurance companies, including those belonging to Tatas, SBI, ICICI, HDFC and Reliance Anil Ambani group from raising funds through unit linked schemes.

Many of the affected companies said they would talk to both Sebi and Irda on the issue, which has emerged as a bone of contention between the two regulators.

Rejecting the arguments by insurance companies that Ulip schemes are insurance products, a view endorsed by Irda, market regulator Sebi issued the order late last night.

“ exercise of the powers...I hereby direct ... the (14) entities not to issue any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new and/or additional subscription for any product (including Ulips) having an investment component in the nature of mutual funds.”

The players who have been prohibited from raising any further money include big players like SBI Life Insurance Company, ICICI Prudential Life, Reliance Life, Metlife India, Aviva Life, Tata AIG Life, etc.

However, state-owned insurer LIC is not named in the order, which further said in case these entities wanted to raise funds through any such schemes they would have to obtain the requisite certificate of registration from Sebi.

The order was issued by Sebi whole time member Prashant Saran, said.

Earlier in January, Sebi had issued a notice to these companies asking why they did not seek its permission before offering Ulip schemes.

To buttress their contention, they said the predominant feature of a Ulip is insurance cover, which is dependant on human life and the mere existence of an additional investment feature cannot convert a Ulip into a mutual fund.

They further contended that Ulips have a mandatory insurance cover, which forms a vital and inseparable part of the product.

Unlike mutual fund schemes, the products are interlinked with the life of the policy holder, these companies added.

In its reply to Sebi’s notice to insurance companies earlier, Irda is also understood to have taken the stand that regulation of Ulips by Irda was well laid down and that it did not agree with Sebi’s contention that insurers needed a certificate of registration from the market regulator for dealing in Ulips.

However, Saran in his order said, “I conclude that Ulips offered by the said entities are a combination of investment and insurance and, therefore, the investment components are in the nature of mutual funds, which can only be offered/launched after obtaining registration from Sebi.”

The other companies, against whom the Sebi had issued the order last night include, Aegon Religare Life Insurance Company, Bajaj Allianz Life, Bharti AXA Life, Birla Sun Life, HDFC Standard Life, ING Vyasa Life, Kotak Mahindra Old Mutual Life and Max New York Life.

Source : News Reports

What the SEBI seeks from the insurance companies is to get prior permission to launch any investment products. You should not treat similar schemes (MFs and investment portion of ULIP) with entirely different sets of rules. As the  present awareness level among investors are low, we recommend scrapping of ULIP as it predominantly serves the financial intermediaries' interest rather than common investors.    

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