The dispute between SEBI (Securities and Exchange Board of India) and IRDA (Insurance Regulatory and Development Authority) on the selling of ULIPs has confused customers who had invested in ULIPs (Unit Link Insurance Plan). SEBI has given orders against 14 private insurance companies from further selling on ULIPs. LIC is not included in this list. According to SEBI, ULIP schemes are under its purview. The ULIP scheme is very much popular among investors as the return is high for a longer period of investment. This plan accounts nearly 70 to 80 per cent of the revenues of insurance companies. Their order is going to affect millions of consumers unless the insurance companies register with SEBI. The dispute is about who should regulate the insurance companies, since the companies have ULIPs as one of their products.
Customers are now in confusion whether they can buy ULIPs until the dispute is resolved. Similarly insurance companies may suffer if investors stop buying the ULIPs. Every time there has been a change in the norms of ULIPs, it may be sometimes a ban on short term plan or the reduction in charges. This may help new customers as they will get more benefits than old policy holders. In this dispute the buyers are made to wait for a long time.
The power of the regulator is the biggest assurance for a policyholder. The regulator has the mandate to ensure that the policy holder is protected. They can ask promoters to bring additional capital if the company’s finance is under stress. Now the regulators’ power is questioned and the SEBI’s order resulted in forced, premature surrender of insurance policies which will ultimately cause substantial loss to policyholders and the insurers.
When the sale of ULIP products is stopped, the revenue flow will be reduced which can disrupt the payment of benefits for customers on maturity, on death and other admissible claims. This will definitely put the policy holder and the general public to irreparable financial loss. According to the present scenario it is good not to buy ULIPs now, it would also be reasonable for existing policyholders to continue with their policies.
Life Insurance Corporation is likely to gain market share if the dispute between SEBI and IRDA over ULIP regulation is not resolved. Since there is uncertainty consumers may be more comfortable with conventional products where LIC is strongly based. They have the largest array of traditional insurance products which are definitely outside the realm of dispute between SEBI and IRDA. We can see that LIC is best placed in the industry to fill in the vacuum created by the uncertainty over ULIPs. If your agent is good enough, you will be better placed to identify the right course of action if there is a change in the regulatory regime. Nearly two third of the policyholders have a good professional relationship with their insurance agent. If he has spent enough time in explaining the policy to you and depending on the kind of returns that you get, you should probably hold on to the policy.
