Insurance regulator Irda?s sweeping changes in the structure of Ulips will pave the way for long-term investments in the product. The extension of lock-in period from three to five years, the minimum guarantee of 4.5% returns on pension plans and a 10-times increase in the minimum risk cover will bode well for those retail investors who are looking at an investment avenue with an insurance component linked to it. Buyers will pay lower charges for the same premium they paid earlier and any top up on insurance premiums will be treated as a single premium, which means that every top-up that one makes will have an additional insurance cover backing it as well. For insurance companies, the new regulations will enable them to get more long-term funds, which will be helpful for the stock markets and funding infrastructure projects. Undoubtedly Ulips, which accounted over 40% of the total life insurance policies sold, were marketed very aggressively by distributors because of the high commission they got. More than Rs 2 lakh crore is mobilised annually as premium from Ulips and the tax exemption has been a major driver behind the success of the product. Now, distributors may not find it lucrative enough to sell the product and, going forward, insurance companies will have to spend more money on consumer awareness and make their products pull-driven rather than push-driven, which has been the case so far. Distributors will see some reduction in volume as is the case with any long-term financial products and they will have to come out transparent on what they promise to investors. As we have argued in the past, the recent spat between the Sebi and Irda has brought the entire issue of mis-selling to the forefront and made the latter come out with a notification addressed to companies to spell out to customers the commissions they pay to agents for selling Ulips and the benefits to a policy holder upon maturity.
After a spate of changes in regulations, Irda will now have to ensure that they are implemented in the right earnest and protection of consumers? interest must be the overarching goal. Insurance companies must draw up plans to make Ulips a disciplined investment product and commit investors to pay the premium regularly. As the viability of an insurance company depends heavily on the persistence of products, they will have to ensure that the products do not get surrendered or lapse. Insurance companies and Irda will now have to work in tandem to regain investors? confidence and make Ulips a long-term investment product.
