The Hindu Business Line : IRDA may draft new norms for unit plans

THE insurance regulator has called a meeting of all insurers on Monday to discuss issues that may radically change the structure, pricing and benefits of at least some of the products in the fledgling Indian market.

The meeting of insurance product designers, called actuaries, will keenly focus on unit-linked insurance products (ULIP). These high-return, investment-oriented plans in which risks are borne by customers, have been generating tremendous interest among savers and also drawing flak from merchants of alternative saving products.

Almost nine out of every 10 plans that private insurers sell today are unit plans.

The Insurance Regulatory and Development Authority's (IRDA) Actuary Member, Mr P.A. Balasubramanian, confirmed that a meeting of insurers has been called on Monday to discuss urgent issues.

Though Mr Balasubramanian declined to reveal specifics, he admitted that the meeting would split hairs on unit-linked plans.

"We will discuss the entire gamut of insurance products. Right from design, pricing, disclosures ... up to the final stage of the products," he said.

He added that framing guidelines for high-risk, investment-oriented plans would be on the agenda. IRDA has been in consultation with the companies on new ULIP guidelines.

Mutual funds, feeling threatened by high-return insurance products with more tax benefits, have been lobbying with the Securities and Exchange Board of India to put curbs on them. They say that insurers are distributing plans similar to theirs' masquerading as insurance products.

Insurers have unbound freedom in distribution unlike asset managers who operate under tight expense ratios and distribution norms prescribed by the capital markets regulator.

Even some financial advisors are sceptical about insurance companies aggressively peddling ULIPs to customers. "They are misleading customers," said Mr Gaurav Mashruwala, a certified financial planner.

Mr Mashruwala said that insurance companies are not transparent enough with investments and expenses and their agents are not well informed. "Today, ULIP investors get the worst of both - mutual fund and insurance," he said.

Insurance companies counter that they educate the customer about the risks and benefits of unit plans and, ultimately, it is an informed decision of the customer whether to invest in them or not. They also say that they maintain disclosure standards as high as mutual funds.

IRDA's Monday meeting is expected to deal with several of these issues conclusively. At least a draft of ULIP guidelines is likely to emerge from it.

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