Max New York Life, Aviva Life, Bharti Axa Life & Rel Life Offer These Plans
THE Insurance Regulatory and Development Authority (Irda) has announced an overnight ban on all universal life insurance plans. The regulator has told insurance companies that all current universal life plans will cease to exist from October 22.
Universal Life Plans (ULP) are traditional life insurance products. However, unlike typical endowment products the returns under these plans are not linked to bonuses declared by the company. Also they have similarities to unitlinked insurance plans in terms of the flexibility that they offer. Only four companies – Max New York Life, Aviva Life, Bharti Axa Life and Reliance Life offer these plans.
One reason why ULPs have come under fire was because they were seen to offer a regulatory arbitrage to life companies. This is because while they offer the flexibility of Ulips, they do not have restrictions on charges that Ulips are subject to. As a result, companies have built in high commissions into these plans. In a way they also contain the worst aspects of both traditional and unit-linked insurance plans – high costs and restriction on returns.
In a circular to all insurance companies on Thursday, Irda released draft guidelines for new ULPs and also informed companies that all current ULPs would cease to exist from the close of business on Friday. The Irda has issued draft guidelines for new ULPs (variable insurance plans) and sought to get comments from companies before the end of the month.
Irda chairman had earlier made it clear that ULPs would be the next target of regulation. However, some of the companies that do sell the product were startled with the suddenness of the ban. "It is very difficult to implement an order overnight since there are lakhs of agents and policies would be in various stages of acceptance", said an official with a private life insurance company. Companies selling ULPs are expected to make a representation to the regulator for more time.
However, some CEOs feel that the move merely aligns the guidelines for Ulips with ULPs and does away with the regulatory arbitrage that some companies were taking advantage of.
Another CEO of a private life company pointed out that in the past whenever Irda asked companies to stop selling for a month or so in advance, companies have taken undue advantage of this and have actually pushed these products by positioning them as a 'limited period offer'.
One problem with regulating ULPs was that they are not really a separate category of products like Ulips and it was only certain characteristics that set them apart from other traditional plans. The literature provided with existing ULPs do not describe them as a 'universal life plan'. Irda has plugged this loop-hole by coming out with a definition in its exposure draft.
