The Hindu Business Line : Insurers anxious over regulator's move on ULIPs

HOW does one define `long-term'? Insurance companies are now debating this as it would be crucial for one of their popular products — Unit Linked Insurance Plans — which is being modified by the Insurance Regulatory and Development Authority (IRDA).

The trigger is the move by the IRDA to introduce a lock-in period for ULIPs under the proposed guidelines to be finalised shortly.

"Currently, there is no consensus on whether `long-term' should be defined as one year, three years or five years. Gone are the days when a long-term product meant a time frame of 30-35 years," said an insurance company official.

The IRDA is concerned over the tendency to treat ULIP as a short-term investment product as the regulator wants it to be essentially a long-term insurance product with an investment plan.

While the proposed guidelines on ULIPs are expected to define what is long-term for ULIPs, the insurers are worried that their hottest product may lose some sheen. They fear that the guidelines would take away the flexibility of the product — a unique feature of ULIPs, which are now competing with the mutual funds.

The IRDA has been expressing concern over the mis-selling of ULIPs and the insufficient insurance component in the product. In fact, the IRDA recently asked Bajaj Allianz Life Insurance to introduce an exit penalty in one of its unit-linked products.

All the 15 insurance companies have given their suggestions for the proposed guidelines.

The CEO of a private life insurance company said that the guidelines for ULIPs should be in sync with the international practice of allowing the product a short-term profile.

Mr S. Chandrashekhar, Chief Investment Officer, SBI Life, said: "Between 1997 and 2001 the growth in ULIPs in the UK increased from 21 per cent to 36 per cent of the total life insurance premium. So, despite the fall in the global markets due to the dotcom bust, the growth in ULIPs did not drastically come down."

The international practice varies from country to country, driven by local tax regimes and investment markets. Mr Gopalakrishnan, Senior Vice-President and Appointed Actuary, Birla Sun Life, said that internationally, traditional products have come under the scanner because of lack of transparency in how these products operate. "Unit-linked products, on the other hand, are contemporary products that offer flexibility in managing one's savings and protection needs," he said.

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