Monday, April 12, 2010

SEBI Bans Major Insurance Companies from conducting ULIP business

Many of us today have invested in ULIP plans with some top Insurance cum Asset Management Companies in India. These ULIPs span from retirement plans to children’s education and covering almost every aspect of investment for an investor. Last week, SEBI – the governing body for stock market investments had banned 14 of the top insurance companies in India from conducting business in ULIPs without its approval. We are going to dig deep as to what happened and how it would impact us…

SEBI vs IRDA face off

The Securities Exchange Board of India and the Insurance Regulatory and Development Authority have been mulling over the ULIP story for quite some time. There has been discussions between these two boards reg. regulation of ULIPs. It all started in January 2010 when SEBI issued a show cause notice to insurance companies asking them to explain why they did not seek the approval from SEBI before launching ULIP plans. The ULIP business has been flourishing in the Jan to March quarter because it is the financial year end and investors were scrambling to save income tax by investing in tax saving instruments.

With discussions going on between SEBI and IRDA and with no satisfactory response from IRDA and the insurance company, SEBI went ahead and banned 14 of the top fund management and insurance companies in India from conducting further business with these ULIPs

Why Ban ULIPs?

SEBI is the governing body for all stock market related investments and hence has the power to oversee any instrument that invests in the stock market. These ULIPs are special investment instruments that gives exposure to the stock market and gives insurance to the investor and hence many insurance companies have flouted ULIPs of their own. Since insurance companies are issuing these, the IRDA has been regulating them ever since their inception.

In January 2010 SEBI issued show cause notice to the insurance companies to explain why they did not seek SEBIs approval before launching these schemes and to get their approval for the same to continue with the ULIP business.

Insurance regulator IRDA is understood to have stated in its reply that regulation of ULIPS by IRDA is well-laid down and that it does not agree with Sebi contention that insurers need a certificate of registration from the market regulator for dealing in ULIPS.

Since ULIPs are issued by insurance companies, SEBI does not have full control over these instruments and hence wanted to regulate the ULIP segment and as it could not get satisfactory responses from IRDA it went ahead and Banned these insurance companies from doing business with ULIPs until cleared by them.

What are these 14 companies?

The 14 insurance companies are:-
  • n Religare Life Insurance Company Limited
  • Aviva Life Insurance Company India Limited
  • Bajaj Allianz Life Insurance Company Limited
  • Bharti AXA Life Insurance Company Limited
  • Birla Sun Life Insurance Company Limited
  • HDFC Standard Life Insurance Company Limited
  • ICICI Prudential Life Insurance Company Limited
  • ING Vyasa Life Insurance Company Limited
  • Kotak Mahindra Old Mutual Life Insurance Limited
  • Max New York Life Insurance Co. Limited
  • Metlife India Insurance Company Limited
  • Reliance Life Insurance Company Limited
  • SBI Life Insurance Company Limited
  • TATA AIG Life Insurance Company Limited
IRDAs reaction to the Ban

The IRDA rejected the market regulator Sebi's ban on life insurance companies to raise funds through unit-linked insurance policies (ULIPs) and asked them to do business as usual.

Where is this heading?

It is a tussle between the regulator for stock market investments and the regulator for insurance in India and it will go on for quite some time. In my personal opinion insurance companies are bound to be regulated by the SEBI because they are investing in the stock markets but at the same time SEBI cannot intervene in the business of Insurance cos as long as they abide by the investment laws of our nation.

What is the impact on us as an investor?

With this tussle between IRDA and SEBI expected to go on for some time, authorities from IRDA have come up with news statements to allay the fears of the investors. A simple question that would arise in any investors mind is:

“If ULIPs are banned by SEBI what will happen to my hard earned money that I have invested in it, especially after the huge crash in NAVs after the stock market crisis in the past two years”

J Hari Narayan, chairman of IRDA, has told reporters that, "Policyholders of the ULIPs offered by different insurance companies are assured that these policies are safe and secure and the matters arising out of the recent orders of the SEBI will be addressed expeditiously in the appropriate forum in accordance with Law."

Though, the chairman of IRDA has come up with a comforting press release, things are hardly settled. The regulator (SEBI) has been staying away from these ULIP plans for the past few years and out of the blue it has entered the fray and banned them because of lack of approval. A full fledged face off between IRDA and SEBI can be expected in the courts of Law in India.

What is the Finance Ministry's stand in this matter?

As of now the finance ministry is keeping a safe distance from this problem. But, it is rumoured that the Finance Minister would be briefed about the matter and we can expect a full stop to this struggle between IRDA and SEBI.

The Finance Secretary Mr. Ashok Chawla has told reporters that "It's a matter between regulators; so they have to decide"

What Next?

Industry Experts across the country are hoping for the finance ministry to enter the picture and clear the air and settle things down between the two regulatory bodies in a way that investor interests are not compromised.

Let us wait and watch!!!


  1. Nice Blog!!!
    Thanks For Great Information .

  2. I recently bought a property in London, and i’m wondering what company to go through for the right insurance. I have spoken with Landlords Insurance

  3. @ Jolly:
    I am so sorry. I dont have much idea about property insurance in London. Apologies ...

  4. Hi..
    my all basic concepts are cleared now, I think it should be more descriptive with more information!


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