Financial sector regulators here have been in denial about their role as protectors of consumers
The past month has seen an escalation in insurance pitches. Personal calls, emails and SMSes have gone up as have questions received from readers and viewers and on Twitter. The pitch is simple: Life Insurance Corp. of India (LIC) will stop selling its best selling products from 1 October, so invest now, before 30 September to lock in the policy now. Part two of the pitch is that LIC will begin to levy service tax on its products from October 1, so buy now. Mint’s Deepti Bhaskaran reported on 17 September (read the story here: http://bit.ly/15ziMCe) that the pitches have nuggets of truth on which a false façade of a cynical sales pitch has been constructed. The truth is that an 18 February circular by the Insurance Regulatory and Development Authority (Irda) directed life insurance companies to re-haul traditional plans (unit linked plans, or Ulips, have investments going into stocks and give market-linked returns; traditional plans give a basic guaranteed return. Um, yes, there is a little kernel of insurance in both products) so that they are less unfair for investors. Ulips were re-hauled in September 2010 causing the industry to manufacture and sell traditional policies that still carry very heavy costs of commission that go all the way to 40% of the first premium.