To curb the mis-selling of life insurance policies as pure investment products, the Insurance Regulatory and Development Authority of India (Irdai) has barred insurance companies from advertising unit-linked insurance plans or Ulips as investment plans.
The insurance regulator said all insurers shall advertise the launch of Ulips only with reference to the underlying life insurance coverage and the products associated with it.
“Further, no press release or statement shall be issued by the insurer without making a reference to the life insurance coverage and the associated products,” Irdai said in the master circular.
This comes in the backdrop of insurers launching mid-cap and small-cap Ulips in the past couple of years when the two indices were rising steadily. Investors were mis-sold these products as pure investment products, said industry players.
In addition, the regulator said that all the advertisements shall disclose that the past performance does not construe any indication of future bonuses, and other factors – a move that is similar to Securities and Exchange Board of India guidelines for mutual funds.
“This is a progressive move. It could have come earlier,” said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.
Parekh said this was a necessary step given that the stock market has done pretty well in the last few years. “There is a tendency to sell Ulips on the basis of investment returns rather than on protection basis. It is not necessary that manufacturers encourage this, but this tendency exists,” he said.
Insurers will have to specifically state that market-linked insurance plans are different from traditional endowment policies and carry risks. Likewise, participating (with bonus) endowment policies will have to state upfront that the bonuses projected in benefit illustrations are not guaranteed.
The insurance regulator also added that there should be no advertisement on services related to insurance, comparison of rates or discounts to erstwhile tariff, highlighting the potential benefits of an insurance product without a fair indication of associate risks, exaggerating the benefits of the product, etc.
Parekh also added it would be interesting to see how the regulator follows up on this with insurers because even if the manufacturer is not promoting it as investment product, intermediaries like insurance agents might take that route to sell the products, especially when the stock markets are booming.
Life insurers also have to create a public notice on the home page of their website cautioning the general public about spurious calls and fictitious offers which announce bonus or investment of premiums.
In case of unclaimed amounts dating back to more than 10 years as on September 30 every year, the insurer has to deposit it to the Senior Citizens’ Welfare Fund on or before March 31 every year. Even after such transfers, policyholders will be able to claim back their dues up to 25 years from the date of transfer to the fund. After this period, the unclaimed amounts will be handed over to the central government.