SEBI Vs IRDA

In a significant order late on Friday, market regulator Sebi banned issuance of Unit-Linked Insurance Plans, popularly known as ULIPs, by life insurance companies.

Sebi has asked 14 private insurance companies, including many market leaders  not to issue any more ULIP products. The Sebi order does not cover state-owned insurance major LIC. There is no immediate clarity on the fate of existing products.

14 Brands as Under :

 1.Aegon Religare
 2.Aviva
 3.Bajaj Allianz
 4.Bharti Axa
 5.Birla Sun Life
 6.HDFC Standard Life.
 7.ICICI Prudential
 8.ING Vysya
 9.Kotak Mahindra
10.Max New York 
11.Metlife
12.Reliance
13.SBI
14.Tata AIG

Source : www.rupya.com(http://www.rupya.com/2010/04/10/insurance-company-not-to-sell-ulips-sebi-bans-14-insurance-company/14520)
            
At present, over 70% of the new business premium for most insurance companies come from ULIPs, running into thousands, if not lakhs of customers. The genesis of the Sebi order goes back to the feud between MFs and insurance companies.
When the latter started issuing ULIPs about 5-6 years ago, offered huge commissions to insurance agents and flooded the market with these products which nearly mirrored mutual fund (MF) products. ULIPs are products that combine insurance and investment for the insured and are mostly market-linked.
Between 2005 and 2008, when the stock market was on a bull run, MFs lost business but insurance companies mopped up large sums of money through ULIPs.
In December 2009 and January 2010, Sebi had issued show cause notices to 14 insurance companies asking them why action should not be initiated against them for issuing investment products without Sebi’s permission. On Friday, Sebi wholetime member Prashant Saran passed the order putting a ban on ULIP products by these 14 insurers.
One of the main contentions for Sebi was that although a ULIP is an insurance product which comes under IRDA, part of it is also an investment product which should ideally be regulated by Sebi.

In an interesting twist to the issue of Sebi ban on unit linked insurance products( ULIPs) of 14 life insurers, IRDA chairman J Hari Narayan has asked all the 14 companies to continue with their business as usual, "notwithstanding the order of Sebi." The IRDA chairman sent an email to all the insurance companies after consultations with IRDA's consultative committee on the issue.



"The IRDA.. is satisfied that the order of Sebi...will bring the insurance industry to a standstill which would not be in public interest and would be detrimental to the interests of the policyholders and prejudicial to the interests of the insurers," the mail noted. Hence, IRDA "directed to note" all the insurance companies that "they shall continue to carry out insurance business as usual including offering, marketing and servicing ULIPs in accordance with the Insurance Act, 1938, Rules, Regulations and Guidelines issued thereunder by the IRDA."


Earlier in the day, IRDA in a statement on its website assured ULIP holders that such policies were safe and secured. "Policyholders of ULIPs offered by different insurance companies are assured that these policies are safe and secure and the matters arising out of the recent orders of Sebi will be addressed expeditiously in the appropriate forum in accordance with the law," noted an IRDA release, signed by its chairman J Hariharan.

During the day, in Delhi, the finance ministry distanced itself from the ongoing row between stock market regulator Securities and Exchange Board of India (Sebi) and the insurance regulator Insurance Regulatory and Development Authority (IRDA) over the issue of unit linked insurance plans (ULIPs) sold by insurance companies. On Saturday finance secretary Ashok Chawla said that it was an issue between the two regulators and they should resolve it among themselves.
The issue of regulating ULIPs had earlier come up in the meeting of high-level coordination committee, where it was decided that this would be resolved by the two regulators—Sebi and IRDA. But, the stock market regulator's order late on Friday has brought differences between the two regulatory bodies out in the open and a senior official said that the finance ministry will have to mediate to resolve the tussle.

The question is who is big ? SEBI or IRDA ?
One thing is clear, this debate ends into the better future of the secondary market and indirectly to inject more necessary liquidity.But it is the time for investors, rather insurers to become more n more cautious as something is cooking up.
We advice our clients to make a term policy and mediclaim policies and invest into direct equity.They will be benefited on saving their allocation charges(which were as many as from 10% to 85% of their investments).And many smart investors ask us that they would have to pay brokerages aslo on investments in equity market, but remember, brokerages are as low as just 0.20%-0.30% of their investments.So comaring to allocation charges of ULIPs these brokerages will last to next 2-3 generations, where those 85% charges and where these 0.20% ?? Any comparison ?And the interesting thing is the investment base is common, its stocks.So why not become a financial planner of your own ?Be wise, moneywise..

Source : Times of India,Rupya.com,livemint.