Monday, April 12, 2010

SEBI van Winkle- Bull in a China Shop

Finally SEBI has mustered courage to take on the Insurance companies (except fellow government co called LIC of India) in the matter of ULIP’s. Alas, it is very late, with ULIP’s having put in a big hole in millions of investors pockets. The only happy people were the ‘soliciting’ agents of insurance, who made fat commissions on every ULIP sale.
The main problem is that SEBI has made this move in a rather undesirable fashion. Insurance is regulated by IRDA. SEBI should have moved differently and avoid creating a confusion. Sure, millions of guys are invested in ULIP’s (proof that it is easy to fool people) and panic does not help. SEBI has woken up too late and is now trying stunts that can only create panic and confusion.

The mutual funds ran a better and more transparent vehicle for investments, but the distributors made far lesser money by selling a mutual fund as opposed to ULIP’s. So, naturally, they pushed ULIP’s down the throat of their ‘customers’. These advisors never explained the economics of a ULIP. Even comparison of NAV’s was a fraud. It never showed the return on what money you actually gave the insurance companies. AMFI never bothered to point out the difference. The simple fact was that most fund house sponsors also have insurance companies. Their approach was simple. “If my fund house does not get you, then my insurance company will”. So, AMFI kept its mouth shut, in line with the wishes and designs of its major influencers. In fact, AMFI should have filed a complaint with SEBI and even gone to the extent of getting a legal stay on ULIP’s long back. The fact that it kept quiet, begs the question.
Now, it is interesting to see what happens. IRDA has been widely quoted as saying as under:
“The IRDA.. is satisfied that the order of Sebi...will bring the insurance industry to a standstill which would not be in public interest and would be detrimental to the interests of the policyholders and prejudicial to the interests of the insurers," the mail noted. Hence, IRDA "directed to note" all the insurance companies that "they shall continue to carry out insurance business as usual including offering, marketing and servicing ULIPs in accordance with the Insurance Act, 1938, Rules, Regulations and Guidelines issued thereunder by the IRDA."
I fail to understand why public interest will not be served should the insurance industry come to a standstill. Why is it that they should come to a standstill? And why should stopping a fraudulent product be “detrimental to interest of policyholders’? This is no reason why ULIP sales should be banned.
I also think that the media should wake up and expose the ULIP. So far, they have perhaps kept quiet for fear of losing ad revenue from insurance companies and been their willing partner in seducing the public at large (in the matter of ULIP’s).
It is time for AMFI to join hands with SEBI and approach the courts to get an immediate stay on sale of ULIP’s. If this opportunity is missed by the mutual fund industry, they have only themselves to blame. Perhaps, even a single MF, which does not have an insurance associate, can join issue on this.
In fact, to my mind, over ninety percent of business done by insurance companies is outside the realm of insurance. Whether it is ULIP’s or endowment policies or ‘money back’ policies, the element of investment is far greater than pure insurance. In fact, the only insurance product is a term policy, which the insurance companies are loath to sell. Try and go to an insurance agent for a pure term policy and see the effort that he will take to fob you off. I have personally tried to ask agents and they have always ended up showing me the middle finger to such a request. On a term policy their commissions are the least. Luckily, now you can go online to pioneering insurance companies like Religare Aegon and buy a term policy without going through a broker or agent. Your premiums are extremely modest and once you take such a policy, you do not have to worry about ever seeing the face of an insurance agent. More important, you are financially far better off.

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