Plans

REPRIMANDING life insurance companies, the insurance regulator, the Insurance Regulatory and Development Authority (Irda), said that if insurance companies have a problem in offering guaranteed returns in unit-linked insurance plan (Ulip) pension products, they should stop being in the insurance business and instead become mutual funds.
“No insurance company can function without offering a long-term guarantee on products. If they have a problem, they should stop being a life insurance company and instead become a mutual fund company,” Irda chairman J Hari Narayan told Financial Chronicle.

Hari Narayan’s comments assume significance in wake of apprehensions from insurance companies

on the regulator’s new norms for Ulip pension plans. In draft guidelines issued on August 1, Irda had abolished minimum guarantee of 4.5 per cent on Ulip pension products.
However, Irda asked insurance companies to fix a guarantee on maturity and allowed the insurer flexibility to determine the guarantee amount.

However, after the draft guidelines were released, insurance companies said that even though the minimum 4.5 per cent guarantee has been removed, insurance companies would not be able to innovate on pension products. Insurers said they might not be able to offer customers the option to invest in equity if they were forced to provide a guarantee and the product will be debtoriented.
“If insurers have to provide a minimum guarantee, the option for investment in equity may not be there or very little exposure may be allowed in equities because investments in equities are risky,“ said a senior official of a private insurance company, who did not wish to be identified.

Ulip pension products have been mired over changes in regulatory norms in the past one year.
On September 1, 2010, in a bid to overhaul Ulips, Irda had issued stringent norms for life insurance companies. Irda issued separate guidelines for pension Ulips. However, even after almost a year after the guidelines were released, no private life insurance company has launched regular Ulip pension plans.

shrutiverma @mydigitalfc.com The story so far Irda had abolished minimum guarantee of 4.5% on unit-linked pension products However, Irda asked insurance companies to fix a guarantee on maturity of the plans Insurers said they might not be able to invest in equity if they are forced to guarantee