ULIP Ban on 14 Insurance

Majors: SEBI
 Unit-Linked Insurance Plan
• A unit is a component of the Fund in a Unit Linked Policy.

• A unit-linked insurance plan (ULIP) is a type of life insurance

where the cash value of a policy varies according to the current
net asset value of the underlying investment assets.

• The premium paid is used to purchase units in investment

assets chosen by the policyholder.
Types of Funds do ULIP Offer?
General Description Nature of Investments Risk Category
Equity Funds Primarily invested in Medium High
company stocks with the
general aim of capital
appreciation
Income, Fixed Interest and Invested in corporate bonds, Medium
Bond Funds government securities and
other fixed income
instruments
Cash Funds Sometimes known as Money Low
Market Funds — invested in
cash, bank deposits and
money market instruments

Balanced Funds Combining equity Medium

investment with fixed
interest instruments
 The ULIP’s Controversy
• Market regulator SEBI banned fourteen major private
insurance companies from raising money from public for any
Unit Linked Insurance Products (ULIP).

• SBI Life, ICICI Prudential, Tata AIG, Aegon Religare Life,

Aviva Life, Bajaj Allianz, Bharti AXA, Birla Sunlife, HDFC
Standard Life, ING Vysya Life, Kotak Mahindra Old Mutual
Life, Max New York Life, Metlife India and Reliance Life.

• As ULIP are doing investment in share market, SEBI should

have a control over it and thats why SEBI is saying that
insurers should seek its approval for ULIP products.
 The ULIP’s Controversy
• Within 24 hours of this ban, Insurance Regulatory
Development Authority or the IRDA has responses to the
SEBI notice by stating that insurers can continue issuing
policies as usual.

• SEBI has removed all entry loads on mutual fund investment,

But insurance agents are making lot of money in first 3-5
years of ULIP charging high entry load on ULIP investment.

• Most of the ULIPs are mis-selled in India, saying that

investment have to be done only for 3-5 years, which is
incorrect as if policy holder does not continue this after that,
he stands to loose.
 Ulip Controversy – The full story
Date Sebi Irda Government – Finance Ministry

Abolished entry loads for mutual

August ‘09 fund schemes

Issued show-cause notices to

some life insurers asking why
action should not be taken against
December them for selling ULIPs without its
‘09 approval

Again questioned Insurers about

not seeking Sebi’s permission
January ‘10 over issuance of Ulips

“ULIPs are broadly similar to the

mutual funds, except that they are
required to segregate a certain part
of the premium towards the life
February ‘10 insurance of the plan holder.”

“Ulips globally are managed by

insurance regulators, and under no
circumstance will we let Ulips to
March ‘10 be taken over by Sebi.”
 Ulip Controversy – The full story
Date Sebi
Issued order to ban 14 private
insurance companies from
9-Apr-2010 issuing/servicing Ulips
10-Apr-2010
Talks to order ban on 9 more
insurers including, state
11-Apr-2010 owned LIC
Irda
“…they (Insurers) shall continue to
carry out insurance business
as usual including offering,
marketing and servicing
ULIPs in accordance with the
Insurance Act, 1938, Rules,
Regulations and Guidelines
issued there under by the
IRDA.”
Government – Finance Ministry
Finance Secretary Ashok Chawla
said that it was an issue
between the two regulators
and they should resolve it
among themselves
Finmin interved and status quo was
restored. Matter to be settled
in court.
 Ulip Controversy – The full story
Date Sebi Irda Government – Finance Ministry

Asked Irda and Sebi — to “jointly

seek a binding legal mandate
12-Apr-2010 from an appropriate court.”

Issued second order that exempted “It could take another one or two
existing Ulips from the ban, days to arrive at a decision” –
but said its nod was must for on future course of legal “We need to look at both the orders
13-Apr-2010 issuing new Ulips. action. internally and discuss it”

“There is no fresh clarification. The

earlier one stands good.” – on
ban on issuance of new Ulip
14-Apr-2010 products.

Moved the Supreme Court and some Supports Sebi’s April 13 order; says
high courts (including directions issued were in
high courts of Delhi, Bombay keeping with the agreement
and Hyderabad) to guard worked out with the insurance
15-Apr-2010 against any ex parte decision. regulator.
 THE FINAL RESULT
• Lock-in increased from three years to five years.

• Minimum insurance cover in ULIPs other than pension

and annuity products doubled from five to 10 times the
annual premium.

• All charges to be distributed uniformly over the lock-in

period.

• A minimum annual guaranteed return on pension or

annuity plans.

• The net reduction in yield for ULIPs should not be more

than 3 per cent at maturity.
 THE FINAL RESULT
• Standardised surrender charges.

Policy period   Less than 10 yrs                     More than 10 years

Year

1st year                        12.50%                         15%

2nd year                       10.00%                        12.50%

3rd year                        7.50%                          10%

4th year                        5.00%                          7.50%

5th year                        2.50%                          5%

6th year                        NIL                                2.50%

7th year onwards       NIL                                NIL