Warring regulators Securities and Exchange Board of India (Sebi) and Insurance Regulatory and Development (Irda) have been asked by the finance ministry to let the courts to decide on which one of them will regulate unit linked insurance plans (Ulips).
It does nobody much good when policemen fight, and the ongoing spat between Sebi and Irda is particularly harmful. The eight million investors in equity-linked products are not getting any comfort from the public battle.
Illustration: Jayachandran / Mint
The ministry’s intervention, a dismal example of bureaucratic indecision, may well resolve the issue. A better way to do so, however, would have been to let the issue be decided by the nature of the product rather than regulatory ease or business interest of the companies behind the products. The nature of the product should decide the regulator, not history or turf or money power of the business entities involved.
The Ulip is a product that pools retail investor money and allows a fund manager to target a return from market-linked products such as stocks and bonds. The aim of the product is to grow the money to provide for planned future needs of an average family. It is predominantly an investment product (constructed, sold and bought like one) with just about 2% of the premium going towards life cover and the bulk getting invested in market-linked products. From the point of view of investors, the Ulip is a mutual fund with a free crust of insurance thrown in. Most advertisements or sales pitches of a Ulip highlight the stock market-linked corpus targeting function of the product rather than the protection for the dependants of the principal breadwinner.
It is the latter that is the key function of a life insurance plan and not the stock market payoff.
This makes the Ulip an investment product. Market-linked products must be regulated by Sebi, not Irda. The share of the investment that goes to target either should decide the nature of the product, and define whether it is an investment product or an insurance one. The product will be registered with both regulators, but its function will decide its effective regulator. The courts, then, could do worse than look at the current issue from the point of view of the investor. And all the investor wants is a low-cost, transparent, portable product that discloses its dominant nature —insurance or investment.
How should the Sebi-Irda spat be resolved? Tell us at firstname.lastname@example.org