Irda Mulls New Norms For Ulips

The Insurance Regulatory and Development Authority of India (Irda) has observed that the proportion of unit-linked products has substantially gone up in the overall portfolio of insurance companies.

In its actuarial evaluation report for 2007, the Irda has observed that the proportion of unit-linked insurance plans (Ulips) in the total product portfolio has gone up by 65-70 per cent, which ties the fortunes of the insurance company and its investors to the vagaries of the stock market. Meanwhile, all companies are well above the solvency margin of 150 per cent.

According to R Kannan, member (actuary), Irda, the regulator is in the process of modifying the guidelines for Ulips so that products with high concentration of investments will be treated as mutual funds and term products if the proportion is tilted towards a greater risk.

The review is aimed at bringing in better information, transparency standards and understanding of such products among customers. Customers should have an idea as to what the risk and the return in the policy are when they subscrib to them, he added.

To this effect, the Irda also proposes to make it mandatory for insurance companies to issue sales document with illustrations as a part of the overall policy document.

This would give an idea to policyholders about the instruments they are investing in and risks are taking. The company, in this document, will have to explain what component actually goes towards life cover and what towards investment.

Lack of understanding of customers has always remained a problem with Ulip products. Earlier this year, the Irda had clarified that the policyholders in the unit-linked scheme could remain invested in the policy for another five years after the maturity, but could not withdraw any amount.

The clarification was issued in the wake of the fact that policyholder would have the option to remain with the scheme even after maturity, but they could not engage in fund management activity. To be precise, policyholders will not have the option of switching funds, equity or debt, or withdraw the amount.

The decision to continue with the scheme after maturity will be purely at the option of policyholders. The objective was to ensure that the insurance company cannot act as a fund manager while it can only provide the option to the policy holder for waiting for a better NAV.