IRDA to make ULIPs investor-friendly
Insurance regulator IRDA, which has won its turf war with market watchdog SEBI over regulation of ULIPs, is expected to tighten norms for these schemes,including commission charges,to make them,attractive for investors.
There would be stricter and stringent distribution norms, leading to lowering of commissions on the sale of such products, sources said.
Currently, commission charges are as high as 50 per cent of the first-year premium.
According to IRDA Chairman J Hari Narayan, it will frame new guidelines for these products to make them more attractive for policy holders.
At the same time, the regulator plans to come out with directives to improve the transparency element of such hybrid products, which involve both investment and insurance.
The regulator will also try and address the issue of increasing the lock-in-period and raising life cover.
These products need to be more transparent and whatever commission and expenses are built into the product should be disclosed explicitly in a simplified format, sources said.
Indicating that IRDA would continue with its reforms of ULIPs, Finance Minister Pranab Mukherjee had said, “I understand that Insurance Regulatory and Development Authority has taken some very positive steps in respect of regulations of ULIPs, which are in the interest of both the insurance industry as also the policyholders.”
“I am sure that the insurance industry and IRDA would continue to bring in these reforms so that the interest of all the stakeholders are secured,” he said earlier this month.
IRDA has already taken some measures like imposing a cap on ULIP charges, extending the minimum term of the policy to five years, introducing the concept of compulsory annuitisation in pension policies and fixing the maximum limit of surrender charges.
In order to put more money in the hands of investors, IRDA recently said that insurers cannot charge a fee for surrendering a unit-linked insurance policy after five years.
Insurance companies used to charge a nominal fee for customers to withdraw their unit-linked policies even after expiry of the lock-in period.
However, policies withdrawn during the lock-in compulsorily attract a high surrender charge.