Addressing their concerns over what is considered as a sea change in Unit-Linked Insurance Plans (ULIPs) coming into effect from September 1, 2010, the private life insurers fear that sales in September might come to a halt. At the same time, some agents are using this (change in regulations) as a sales pitch for their existing high commission policies, which will be non-compliant next month, by positioning them as a limited period offer.

In a recent clean-up drive enforced by IRDA to make ULIPs more investor friendly, the insurance regulator has directed the insurers to reduce charges and consequently improve return for policyholders. Secondly, it has attempted to distinguish ULIPs from mutual funds by forcing insurers to incorporate life cover that is at least 10 times the premium. To sustain the lower charges, insurers have been forced to halve commissions and cut expenses. What has made life tougher for the insurers is that the existing products cannot be modified to make them compliant. All insurers have been asked to file completely new products with fresh unique product identification number from IRDA.

Reacting to this, CEO of a life company said, “We need a couple of weeks to get a completely new product from approval stage to market as we have to get our systems updated, brochures printed and agents trained”.

The regulations seek not only to redesign the product but also change the operational model as the existing cost structures will be meaningless, cited another CEO of a private life company.

We believe that though the changes brought about by the IRDA were absolutely required, the pace at which it has come up is the point of concern. Rather the IRDA should have come up with changes in a phased manner giving detailed clarifications in order to smoothen the process of change. This would also make investors comfortable in understanding such changes and their impact.

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