In a major relief to ULIP holders and insurance companies, government today stepped in to ensure that the business of selling equity-linked insurance plans can go ahead as before while the two clashing regulators have decided to approach the court for sorting out the dispute. The Finance Ministry's intervention comes after the two regulators SEBI and IRDA clashed with each other over regulating the Unit Linked Insurance Products (ULIPs).
SEBI chairman C B Bhave and Insurance Regulatory and Development Authority (IRDA) chairman J Harinarayan rushed to Delhi and held discussions with senior officials and Finance Minister Pranab Mukherjee before the two sides agreed to seek a "binding legal mandate".
"SEBI chairman and IRDA chairman today held discussions on jurisdiction over ULIP (Unit Linked Insurance Products). "To resolve any ambiguity and to ensure a smooth functioning in the market, the regulators have agreed to jointly seek a binding legal mandate from an appropriate court.
Meanwhile, status quo ante is being restored," Finance Minister Pranab Mukherjee told reporters after the discussions. When asked what could be the appropriate court, Finance Secretary Ashok Chawla said, "I believe the High Court." While the SEBI is headquartered in Mumbai, IRDA is based in Hyderabad. On Friday, SEBI banned 14 life insurance companies from selling ULIPs till they obtain registration from the market regulator. Within 24 hours, IRDA asked the companies to ignore the SEBI ban order and continue with business as usual.
Bhave and Hari Narayan held a series of meetings with the Finance Secretary and other finance Ministry officials, before agreeing on jointly approaching the court
Earlier in the day, Hari Narayan told reporters that while IRDA does not have power to quash SEBI order, it certainly has powers to give directions to insurance firms.
He questioned the authority of SEBI to ban 14 insurers from raising further money in ULIPs, but added that the market regulator has different views.
SEBI chairman C B Bhave refused to comment on the issue.
Industry body Life Insurance Council Secretary General S B Mathur said, "Policy holders have got reassurance that a way out has been found out to meet uncertainties and differences of opinions and their interest will be protected so they should be reassured."
Law firm Link Legal Managing Partner Atul Sharma said it will take a little bit of time to bring clarity on the issue of jurisdiction of IRDA and SEBI over ULIPs.
"The matter (SEBI order) can be challenged in SAT. The two parties can also sit together to resolve the issue," he added.
The centre of the controversy is whether ULIPs are like mutual funds and hence should come under SEBI or are insurance products under IRDA's regulation. ULIPs invest a major chunk funds in stock markets.
Insurance companies say that ULIPs are not mutual fund products. They said the predominant feature of a ULIP is insurance cover, and mere existence of an additional investment feature cannot convert an ULIP into a mutual fund.
They added that ULIPs have a mandatory insurance cover, which forms a vital and inseparable part of the product.
Unlike mutual fund schemes, the products are interlinked with the life of the policy holder, these companies added.
About 7.03 crore Ulip policies involving a total premium of Rs 90,645 crore were in force in 2008-09. As many as 16.7 lakh policies were sold with a premium of Rs 44,611 crores during April-February 2009-10. PTI
