Finance Minister Pranab Mukherjee has said unit-linked insurance plans (Ulips) need further reforms on the back of the changes already announced by the insurance regulator. The finance minister also hinted at a resolution to the dispute between Sebi and Irda over Ulip regulation.
Speaking at the launch of the new headquarters of the Insurance Institute of India, Mr Mukherjee said: “Irda has taken some very positive steps in respect of regulations of Ulips which are in the interest of both the insurance industry as well as the policyholders. Some of these measures like cap on charges, extending the minimum term of the policy to five years, bringing the concept of compulsory annuitisation to pension policies and the proposal of fixing the maximum limits of surrender charges have brought in the much-needed reforms.”
He expressed hope that Irda would continue to bring in these reforms so that the interest of all the stake holders are secured.
The finance minister’s statement is seen as an indication that Ulips will continue to be regulated by the Insurance Regulatory and Development Authority, albeit with further changes in the product design. Earlier this year, Sebi had asked 14 insurance companies to stop selling Ulips as these were similar to mutual funds and came under the domain of the market regulator.
However, the insurance regulator had asked life companies to continue selling Ulips as these products were approved by Irda. The government stance following the dispute was that it is an issue to be resolved between the two regulators.
Earlier on Tuesday, the finance minister indicated that there will be some sort of resolution to the dispute. “We will resolve this issue soon,” Mr Mukherjee said at a function in Mumbai.
Speaking at the function, Irda chairman J Harinarayan said over 1 crore agents had qualified for the insurance agent’s exam conducted by the Insurance Institute of India and around 40 lakh agents were active. The total premium was 261,000 crore, of which 55% was traditional products and 45% unit linked products.
“There has been concern over commission paid to agents. But I am happy to say the ratio of commission to agency premium is a little over 7%. Considering the kind of sustained activity an agent has to undertake, the repeated visits that he has to make and the post-sale service he has to provide, the remuneration is not excessive. In that sense, there cannot be a lower cost of distribution than this,” said the Irda chairman.