Mumbai: The turf war between stock market regulator Securities and Exchange Board of India (Sebi) and insurance regulator Insurance Regulatory and Development Authority (Irda) over the regulation of unit-linked insurance products, or Ulips, may end soon, with the former likely to accept that these products fall under the latter’s purview.
A senior Irda official said that following a meeting last week between the two regulatory bodies, Sebi bought the insurance regulator’s arguments on Ulips. “Sebi is convinced with the reasoning and legalities on Irda’s existing regulations on Ulips, and they are likely to withdraw from the debate. Irda will continue to regulate Ulips without requiring to make any alterations in the rules,” the Irda official added, speaking on condition of anonymity.
Sebi chose not to comment on the issue and an email sent to it remained unanswered.
Irda chairman J. Hari Narayan would only say that the insurance regulator has thus far “not received any written confirmation from Sebi about their withdrawal from the discussion on Ulips”.
If Sebi does indeed withdraw its objections to Ulips being regulated by Irda, insurance firms have reason to cheer. Being regulated by Sebi would have meant significant changes in these schemes, which essentially club life cover with a mutual fund-like offering.
A person familiar with the debate between the two regulators said that Sebi’s change of heart may have been prompted by the fact that most private insurance firms in India eventually plan to sell shares to the public, a move that will automatically bring them under the jurisdiction of the stock market regulator. “This is one reason why Sebi may have agreed to let Ulips continue with their current regulations,” added this person, who, too, did not want to be identified.
Private sector life insurers such as Reliance Life Insurance Co. Ltd, ICICI Prudential Life Insurance Co. Ltd, SBI Life Insurance Co. Ltd and HDFC Standard Life Insurance Co. Ltd have indicated their plans to sell shares to the public before 2012.
The spat between Irda and Sebi on Ulips is at least a year old, but it intensified in January when the stock market regulator shot off letters on these products to life insurance companies.
The letters asked the insurers why they had not sought the permission of Sebi before launching such schemes. Sebi wanted Ulips to be considered collective investment schemes (CIS) under the Sebi Act. This move set off a war of words between the two regulators, with Irda strongly protesting what it saw as an encroachment on its domain.
In one of its replies to Irda, the market regulator had indicated that its final decision on the regulation of Ulips would be guided by global practices. Following this, the two regulators held a meeting last week, where Irda explained the legalities and global practices on jurisdiction of Ulips. This seems to have worked.
In a 15 February interview to Mint, Irda board member R. Kannan had said: “Ulips globally are managed by insurance regulators, and under no circumstance will we let Ulips to be taken over by Sebi.”
Sebi’s argument was that since Ulips generate a return on investment, they are similar to CIS such as mutual funds. Ulips are hybrid products that provide life cover and invest part of the premium in stocks and bonds. In most cases, the sum assured in the policy varies according to the value of its underlying assets.
Irda said that since Ulips also provide mortality benefits, which is at the core of any insurance product, they should remain under its jurisdiction. Irda had also mentioned in its letter to Sebi that internationally, Ulips are regulated by the insurance regulator.
Section 11AA of the Sebi Act specifies any scheme or arrangement that is a contract of insurance, and to which the Insurance Act applies, is not included under the definition of a CIS.
In the course of the year-long debate over Ulips, the issue has been discussed at various meetings of the high-level coordination committee on financial markets, of which the chiefs of both Irda and Sebi are members.
There are 23 life insurers in the country, with total assets worth Rs10 trillion. For some private insurers, Ulips now account for as much as 90% of premiums. In the first nine months of the current fiscal, Ulips accounted for new business premium of Rs35,722 crore. Total new business premium for the period was Rs67,438 crore.