By banning the sale of ULIPs from 14 insurers, SEBI has effectively put a stop to the entire Insurance industry in India. Because 80% of the new premium comes from sale of ULIPs in India.
What’s more interesting is that the giant LIC is exempt from this “breaking news” order! However, I read in the Mint that the SEBI clarified that it aims to cover Life Insurance Corporation (LIC)- India’s largest insurance company- and eight of the remaining insurance companies whose names did not feature in the order.
The whole ULIP affair has become an interesting boxing match between the Regulators SEBI and IRDA.
To my mind, the entire issue is about more transparency in the sale of ULIPs. So in this case, the SEBI initiative is a step in the right direction. What the SEBI is asking is why should the Insurer sell Investments with an element of Insurance, by charging the customers heavily upfront.
Broadly, the charges in a ULIP ranges upto 35-40% for the first year when it is less than 2% for a Mutual Fund.
I am also unable to understand the stand taken by the IRDA which is essentially protecting the interests of the Insurers and not the policyholders. In fact it came out with an advertisement for ULIP hardly a month back!
More views and updates:
Mint: SEBI Bans LIC Too
It’s match on!
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Insurance is a very old industry in India when you compare it to mutual funds. The Life insurance players are large and well entrenched. They’ve made loads of money and have ensured some of it has been passed on to the regulator and babus.
SEBI did the right thing by banning entry loads on mutual funds. Based on Swarup Committee recommendations, it tried to do the same for life insurance products also. But has been strongly opposed by IRDA.
Life insurance companies have been selling their products purely on the basis of investor ignorance and push from greedy agents. The products lack transparency and hence, its easy to fool investors. Large upfront commissions make sure that the agents spare no effort to push it down hapless investors’ throats.
IRDA would have never opposed SEBI if it has investors’ interest at heart.
Neerav, Thanks for stopping by and taking time to comment. I agree with all of what you say. But I don’t think the IRDA has been bribed by the Insurers, even though it may appear so.
The larger issue is of investor ignorance. Despite so much appearing against ULIP in the press/blogs, over 50000 crore has been collected in the last year alone! Somewhere the individual investor needs to take some responsibility for the uninformed decisions.
What do you think?
Though desirable, investor education is a long drawn and difficult process. Educating the investors will take time but definitely should be done.
However, more immediate task should be to bring insurance products on par with mutual funds in terms of commission to agents. Insurance agents should also be paid directly by the investor instead of insurance co. This will go a long way in preventing mis-selling.
Ranjan, Neerav,
First of all, I agree with the your view that agents have been mis-selling insurance products and SEBI did the right thing by banning fresh sale of ULIPs.
But I do not agree with the view that insurance agents should be paid directly by the investor. Because, insurance (I’m referring to pure risk cover) penetration in India is grossly inadequate particularly in rural areas. Insurance agents are a “necessary evil” in the system. Their large number, spreading across the country, should be leveraged to widen the insurance net. Structure of Agent’s commission should be changed to favor selling pure insurance products (Term Life, Health. Crop etc) rather than investment products. Insurance cos obviously not going to like it, but that should be IRDA’s focus now.
Yes, Prasad. Even the Swarup Committee does not favour scrapping of commission for term insurance. But as I Said earrlier, the investors also need to take some responsibility for their choices!
Agree on allowing commissions on only pure insurance products.
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