Life insurers fear ULIP sales halt in Sept

According to media reports, many private life insurers fear sales may come to a standstill in early September, as they do not yet have in place products that are compliant with new guidelines for unit-linked insurance plans (ULIPs) that come into force next month. At the same time, marketing by some unscrupulous agents has reached fever pitch as they push existing high commission policies, which will become non-compliant from next month, by positioning them as a limited period offer


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A host of companies said that they have not yet received approval for redesigned products lodged with the Insurance Regulatory and Development Authority (IRDA). "We need a couple of weeks to get a completely new product from approval stage to market as we have to get our systems updated, brochures printed and agents trained," said the chief executive officer (CEO) of a life company.

After a bitter turf war with market regulator Securities and Exchange Board of India (SEBI) over ULIP regulation, which resulted in the government ruling in favour of IRDA, the insurance regulator has gone all out to make ULIPs more investor-friendly. The new regulations lower charges and consequently improves return for policyholders - even if the investor withdraws early. Secondly, it distinguishes ULIPs from mutual funds by forcing insurers to incorporate protection that is at least ten times the premium. To live with the lower charges, insurers have been force to halve commissions and cut expenses.

What has made tough for life insurance companies is that the regulator has insisted that companies cannot modify existing products to make them compliant. All insurers have been asked to file completely new products with fresh unique product identification number from IRDA.

The regulator has said that this is to ensure that there is no mis-selling by using old literature for new products. Companies are also directed not to use the existing names or versions of the existing name such as adding a 'plus' or a 'I'. With more than a dozen companies filing products at the same time, there is a scramble to come up with new names. Most companies use a version of life, invest, assure or generic Indian words like Suraksha.

According to the CEO of a private life companies, the regulations call not just for a redesign of the product but a complete restructuring of their existing operational model as current cost structures no longer work. Insurers are also finding it a challenge to design a pension plan, which is in accordance with the new IRDA guidelines. The new guidelines require that insurers provide a guaranteed return on pension plans.

The guarantee would be link to (RBI) Reserve Bank of India is short-term interest rates. Insurers say that it is quite difficult to make forecast on how the RBI will move its short-term rates. In the meantime, some agents are circulating pamphlets saying that this is the last opportunity to buy life insurance without compulsory insurance cover. However, it is true that the existing products would not be superior to new plans that will be start on September.