Was corporate rivalry behind IRDA''s ban on Bajaj Allianz Life, Aviva Life''s actuarial funded policies?

Chennai: According to the insurance grapevine there is a full-fledged, no-holds-barred war raging in the life insurance market with the bigger companies having unsheathed their swords to cut their competitors to size.

This speculation was sparked by the ban last month by the regulator, Insurance Regulatory and Development Authority (IRDA), on the sale of actuarial-funded unit-linked life insurance policies.

The reason for the ban is said to be the opaqueness and complexity of these unit-linked products for a lay policyholder to understand. According to industry sources, a financial powerhouse too is said to have exerted pressure on the regulator for a ban.

What is an actuarial funded product that had the bigger companies gunning for a ban on them? Normally in a unit-linked insurance policy (ULIP), an insurer declares upfront the fund management and other charges. This enables policyholders to be aware of how much of his premium is available for investment and the number of units to his credit at any point of time with the net asset value (NAV) attached to this.

In the case of an actuarial funded product, an insurer would tell his prospect that the entire premium paid would be invested without any deduction towards charges. This does happen in the first year and the prospect is allotted capital units. Nevertheless since the insurer incurs some expenditure and tries to work out what the expenditure cost would be after 10 or 15 years, with an interest component attached to this.

This higher expenditure is spread over a longer number of years in the investor''s fund. The prospect is not aware of this computation, which is not shared upfront, or every year. He is allotted only a number "notional" number of units as opposed to actual capital units because the deductions are not declared.