Market regulator Securities and Exchange Board of India made it clear on Tuesday that insurance companies will have to comply with its rules to launch new Ulips?insurance products linked with stock market investment options. But it allowed a leeway for existing schemes from 14 insurance companies it had barred last week to continue unaffected.
The release comes just a day after finance minister Pranab Mukherjee instructed Sebi and insurance sector regulator Irda to hold their fire and instead approach the courts on who will control unit-linked insurance plans.
Mukherjee had specified that Ulips issued by the 14 insurers will run under Irda guidelines. This has been reiterated by Sebi. But it adds that fresh schemes or products launched by any insurance company will have to get a prior certificate of registration from Sebi.
This means even public sector LIC will have to comply with Sebi rules to launch new Ulip schemes.
The position is in line with its contention that investment in equity schemes have to be compliant with Sebi rules.
A top Irda official said Irda was examining the new Sebi order to take a view and advise life insurers accordingly. SB Mathur, secretary general, Life Insurance Council, told FE, ?Fresh premium on existing Ulips can be collected, but no new products will be approved. This will impact the new players.?
Finance ministry sources said, Sebi?s new order is in line with what was discussed in the meetings on Monday between the two regulators and the ministry officials and has the tacit approval of the government.
On Monday, the finance minister had observed that it would be better not to have entry loads for financial products. The statement assumes significance because Sebi had, in August 2009, banned entry loads for mutual funds whereas agents who sell Ulips continue to earn very high commissions. Its contention is that Ulips are similar to mutual funds with an investment component and so need to be approved by it.
The clarification issued by Sebi on Tuesday, after it had banned 14 life insurers from selling Ulips on Friday last, read: ?Sebi has decided to keep in abeyance, till further notice, the enforcement of the above directions with respect to the Ulip schemes /products existing on the date of the order, i.e. 09.04.10.? The order added that, with respect to any new Ulip schemes launched after April 9, 2010, the directions mentioned in the order will be enforced. The Sebi order is built on the premise that no comoany will launch new schemes but if they do it will have to be Sebi compliant.
The enforcement of the new order technically is tantamount to Sebi controlling the launch of new products from now on. ?April to June is typically the time when the new products (planned for the year) are sent for regulatory approval? said Kamesh Goyal, MD & CEO, Bajaj Allianz Life
Insurance, in an interview to a television channel.
He added that the second-half year sales?which comprise 75% of year?s sales?could be affected. According to sources, 50-60 lakh policies are maturing and the new order could affect their deployment back into the insurance industry.
Kshitij Jain, MD & CEO, ING Vysya Life Insurance, one of the 14 insurers to have received the Sebi order, said he was unclear whether a product cleared by Irda could be launched.