In a bid to make the Government’s kitty cash-rich, Insurance Regulatory and Development Authority of India (IRDAI) has proposed to put in a portion of investors’ money of Unit-linked Insurance Plan (UlIP) into the Central Government Securities (G-Secs), but life Insurance Council is not happy with the regulator’s move. Insurers feel that the regulator’s proposition may discourage their prospective investors, thereby hitting a big loss for them in such schemes, and they have sought a modified draft guidelines from the regulator soon in this regard.
In the recent draft guidelines issued by the IRDAI last month mandatedthat at least 25 per cent of UlIP funds should be invested in the Central Government securities. life insurers were also asked to send their final view of the draft norms by July end to the regulator.
“Our member of finance and investments had already one meeting with members of life Insurance Council and other industry participants recently and we discussed all pros and cons about the UlIP draft guidelines. We have not yet finalised the norms as we have to take a balanced approach for both the insurers and investors. We hope it will come by the end of August,” a senior IRDAI official told The Pioneer.
Members of life Insurance Council, an apex body of life insurers, and other representatives from the sector have sought a change in the draft UlIP norms from the regulator in favour of both insurers and investors.
However, it is learnt that insurers are not ready to follow the IRDAI diktat to put 25 per cent of their UlIP investment in the G-Secs to risk their business as they fear the potential investors in such scheme will run away if their hard-earned money is parked in the G-Secs. They feel that the returns for the investors are least expected from such Government-owned platforms.
“We have sent a representation before the IRDAI on the issue of its recent draft on UlIP investment, which if implemented, will make it mandatory for us to put 25 per cent of the investments in the G-Secs. We have said that it will be difficult for us to put 25 per cent of UlIP investment in the G-Secs as it is upto the policyholders who can decide the quantum of investment in the UlIPcase,” said V Manickam, Secretary General, life Insurance Council.
Even now, the insurance sector invests around 16 per cent of the total UlIP corpus in G-Secs. According to the council, the total corpus of UlIP stands at `3.6 lakh crore out of which around `60,000 crore is into the G-Secs.
There are several types of UlIPs, including traditional plans and other funds, which have different risk profiles as per the plans. While some invest in equity, others go for a balanced approach, and still others invest only in debt products as well.
As UlIPs are eligible for tax benefits under Section 80C of Income-Tax Act, insurers expects that more investors are easily inclined to such schemes to invest their money in it. “If the regulator forces us to park 25 per cent of the funds into G-Secs, then it is very hard to convince our investors for investment,” said an insurer.
“We have requested that if the regulator still wants to hike investments in Central G-Secs, they should go for traditional plans only as they are less risky than others,” said Manickam.
According to the rules, 50 per cent of the premium collected from traditional policies has to be invested in Central as well as State Government securities. As far as the UlIP case is concerned, the IRDAI may finalise its norms soon to clarify its mode of investments pattern. “The guidelines have been approved by the board. After the approval, it has to go through the legal vetting before coming to the gazette,” Chairman TS Vijayan told a news agency recently.