Mumbai: The tussle for jurisdiction over unit-linked insurance plans (Ulips) between India’s insurance and capital market regulators took a new turn on Thursday. In its reply to Insurance Regulatory and Development Authority (Irda), Securities and Exchange Board of India (Sebi) said it would decide on the regulation of Ulips after studying global practices.
“Sebi wants to look at the international practice. It wants to examine how Ulips are governed in other countries,” said an Irda official familiar with the development, adding that “Sebi wants to verify whether the arguments made by Irda are justified and adequate.” A final decision on the jurisdiction for Ulips would likely be made in a month, he said on condition of anonymity.
Irda chairman J. Harinarayan declined to comment. A Sebi spokesperson was not immediately available.
Sebi’s statement differs from its January show-cause notice to insurance firms asking why Ulips, being equity investment products similar to mutual funds (MFs), should not be brought under the collective investment schemes (CIS) of the Sebi Act, and why insurance firms had not sought its permission before launching Ulips.
The notice set off a war of words between the two regulators, with Irda strongly protesting what it saw as an encroachment on its domain.
In a 15 February interview to Mint, Irda board member R. Kannan 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 is that since Ulips generate a return on investment, they are similar to collective investment schemes such as MFs. 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 has countered Sebi’s argument, saying that since Ulips also provide mortality benefits, 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.
The turf war over Ulips has been going on for at least a year, and the issue has earlier been discussed at a meeting of a high-level coordination committee on capital markets, of which the chiefs of both Irda and Sebi are members.
There are 23 life insurers in India, with total assets worth Rs10 trillion. For some private insurers, Ulips 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.