Insurers go ahead with ULIP plans

The standoff between market regulator SEBI and insurance regulator Insurance Regulatory and Development Authority (IRDA) over the contentious issue of the unit linked insurance plans (ULIPs) shows no signs of an early resolution with insurance companies proceeding with their ULIP plans.

The biggest causalities of the clash, according to experts, would be those life insurance companies that were planning to list on the stock exchanges to raise capital. Their plans might have now been set back or even possibly dropped altogether on fears that their valuations would be severely hit.
According to analysts, in case the outcome is in favour of SEBI, the market regulator is sure to work towards bringing the commission structure of insurance companies in line with mutual funds and this would mean that sales in the short term would be hit. Also, the regulators would now take longer to come out with IPO norms.

Also, SBI Life Insurance, HDFC Standard Life, Reliance Life and ICICI Prudential would have to put their IPO plans on hold, according to experts, since in the event of ULIPs becoming a no-load product, their sales would be hit deepening losses for companies, since ULIPs constitute around 60-80 per cent of their business. Also the companies are concerned that the court battle may be long drawn.

With business models of life insurance companies set to transform in the days to come, it is inevitable that some may have to drop their IPO plans for the present and some may find it tough to even survive.

However, the SEBI order does not seem to have dampened the plans of insurance companies who are pressing ahead with new unit-linked insurance plans (ULIPs). The IRDA is also expected to continue with the product approval process.

According to a report in the Hindustan Times newspaper, which quoted an unidentified senior official at a life insurance company, the company had not stalled work on new products. He added that the IRDA had said that the status quo would continue for them and they would go ahead with product approvals.