SEBI ULIP Ban Announced

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MUMBAI, INDIA (GaeaTimes.com)- In a move that has taken the finance sector in India by surprise, market regulator SEBI has imposed a ban on issuing fresh Unit-Linked Insurance Plans by 14 life insurance companies operating in India. The private insurance entities like ICICI Prudential Life, Reliance Life Insurance, TATA AIG, HDFC Standard Life, Birla Sunlife, Max New York Life and some others have got the order from SEBI. However, the new order will not affect LIC, the state-owned insurance entity. It is not yet known what SEBI will decide about the existing products.

As a matter of fact, more than 70 percent of the business premium from new policies comes from ULIP, in the case of private insurance companies. The SEBI order may pose a serious bottleneck to their business. The root of the new SEBI order can be traced back to a few years when the private insurance companies began issuing ULIPs. Some of the ULIPs are near to Mutual Fund offerings. The ULIPs are basically a blend of investment and insurance. The insurance companies made good profits through ULIPs in the period between 2005 and 2008 when MFs were losing steam. In January this year, SEBI issued show-cause to these 14 companies asking why they should not face actions for releasing investment products sans SEBI permission.

The SEBI order is based on the principle that ULIPs are insurance products under the monitoring of IRDA but they also fall under SEBI as they are partially investment products. It remains to be seen what action IRDA takes against this move by SEBI.