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Irda asks insurers to ignore SEBI ban on Ulips

Source : BUSINESS_STANDARD
Last Updated: Sat, Apr 10, 2010 18:50 hrs

Insurance Regulatory and Development Authority (Irda) today asked 14 life insurance companies to ignore Securities and Exchange Board of India’s (SEBI’s) ban on renewal and sale of unit-linked insurance plans (Ulips) as it was not in public interest.

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Terming SEBI’s order as "misconceived and without jurisdiction", Irda Chairman J Hari Narayan said the market regulator’s action would jeopardise the financial position of the insurers and also upset financial stability.

Thus, the insurance regulator advised that companies should carry out insurance business as usual, including marketing and servicing of Ulips. The order was issued after consultations with Irda’s consultative committee

The move will result in individuals being able to renew their Ulips as and when they come up for renewal. In addition, the 14 companies would be able to sell new policies.

The Irda action came within 24 hours of a SEBI order, which sought to ban 14 life insurance companies from selling and renewing Ulips. While SEBI Chairman C B Bhave refused to comment on the issue, Irda pointed out the interests of over 70 million Ulip-holders were involved.

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"The stoppage of all renewals of insurance policies already invested by the insuring public may result in the forced premature surrender of insurance policies, causing substantial loss to the policyholder and the insurers. The effective stoppage of the sale of the said products will cause a complete drying up of the revenue flows to the insurance companies, which could disrupt the payment of benefits on maturity, on death and on other admissible claims, putting the policyholder and the general public to irreparable financial loss. The financial position of the insurers will be seriously jeopardised, thus destabilising the market and upsetting financial stability," Hari Narayan said in the order.

According to the latest available data, in 2008-09, 70.3 million Ulips, involving a premium of Rs 90,645 crore, were in force. Between April 2009 and February this year, another 1.67 million policies, with a premium of Rs 44,611 crore, were sold. The 14 companies that face the SEBI ban had a combined equity base of Rs 16,281 crore at the end of March 2009, Irda said.

THE STORY SO FAR

December 14: SEBI sends notice to HDFC Standard Life.

January 15, 2010: Similar notices sent to 13 other life insurers with a copy to Irda. SEBI wants to know how were Ulips launched without its certificate of registration.

February 10: Irda questions SEBI’s notice, says Insurance Act allows insurers to sell Ulips

February 22: Companies say Ulips have mandatory insurance element, argue they are not under SEBI’s purview.

April 9: SEBI bans all 14 entities from selling Ulips with immediate effect.

Irda said the 14 insurers had responded to SEBI’s notice, which had pointed out that they were not registered to sell Ulips. While the companies had responded to the notices, the insurance regulator said it had also informed SEBI that Ulips are insurance products, marketed by companies licensed by Irda. Besides, each product was cleared under the provisions of the Insurance Act.

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"The Irda Act, 1999 was specifically enacted to provide for an authority to protect the interests of holders of insurance policies, to regulate, promote and ensure the orderly growth of the insurance industry and for matters connected therewith or incidental thereto," the missive said.

Insurance companies, which had received the notice on Friday, spent the day seeking legal opinion and planning their future course of action.k


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