Insurers will be going to IRDA for protesting against the new norms on ULIPs and seek a change, as many in the sector believe that these financial instruments will become less attractive after the proposed regulatory changes

It has been nearly two weeks since the Insurance Regulatory and Development Authority (IRDA) came out with its new 'consumer-friendly' norms for Unit-linked Insurance Plans (ULIPs). However, these norms have disheartened many insurance companies as it makes the product less attractive. Now Moneylife has learnt that chief executives of various insurance companies will be meeting IRDA chairman J Hari Narayan next week to re-design these norms.

"Chief executives from various companies - mostly private insurers and the (members from) the Life Insurance Council will be meeting Mr Narayan, so that we can ask IRDA to change the (proposed) norms, if not, at least make it less harsh for us," a private insurer who preferred anonymity told Moneylife.
According to the official, insurers would ask to remove the norm which states that all pension products in ULIPs should guarantee a return of 4.5% to protect lifetime savings from adverse fluctuation at the time of maturity, and the way commissions have to be paid.

The thorniest issue for insurers is the stipulation that all pension products should guarantee a return of 4.5% at the time of maturity. Insurers believe that this would not be possible for a long-term product and investments in ULIPs will now go to safer outlets.

Earlier, we had spoken to GN Agarwal, Future Generali India Life Insurance's chief actuary and chief risk officer regarding the issue. He said that the 4.5% assured return would have a "drastic" impact on the industry. According to him, more than 50% of ULIPs will be withdrawn from insurance companies and nearly all pension plans linked with ULIPs will be pulled out. He went on to add that insurance companies whose revenues were solely based on ULIPs would be severely affected.

As per the guidelines which would be applicable from 1st September, the regulator has mandated that commission charges for ULIPs will be distributed evenly over the entire lock-in period, which has been extended to 5 years. IRDA has capped the charges at 4% annually for 5 years, and 3% for 5-10 years and 2.25% for products of above 10-year terms.
 
This is a move by the insurance lobby to get a better deal for ULIPs. However, a few private insurers told Moneylife that the IRDA chairman is not likely to accede to their requests. Various regulatory and governmental pressures would make the insurance watchdog stick to its stand.

On 28th June, IRDA issued a new set of guidelines for insurers to comply with. The guidelines have increased the lock-in period for ULIPs from three to five years mainly to ensure that they become a long-term insurance product rather than a short-term investment option. During this period, no residuary payments on lapsed, surrendered or discontinued policies will be made. Top-up on insurance premiums will now be treated as a single premium, meaning that every top-up that one makes will have to have an additional insurance cover backing it up as well.
ULIPs are hybrid products that combine elements of investment and insurance, and have been a big investment magnet for insurance companies. According to the Life Insurance Council, an industry body representing 23 life insurers, of the Rs2,00,000 crore-plus life insurance premium collected in the first 11 months of the past fiscal, more than Rs91,000 crore came from ULIPs.