Needless fight

The turf war between the stock market regulator, SEBI, and the insurance regulator, IRDA, over unit-linked insurance plans (ULIPs) that has come out into the open was entirely avoidable. The sudden ban imposed by SEBI last week over the sale of ULIPs created uncertainty and inconvenience for many policy-holders and investors. The IRDA issued a counter-order that led to a face-off between the two regulators.
Differences of opinion and perceptions are common among financial bodies and regulators. The issue of jurisdiction over ULIPs has been contentious for some time but it is strange that two responsible bodies entered into a public spat. SEBI is more to blame because it fired the first shot in public.

SEBI perhaps has a better claim to jurisdiction over ULIPs, which are more investment-driven than insurance-oriented. Only a small part of the subscription paid by the investor for ULIPs goes for insurance. The rest is invested in stocks and securities. The investor’s aim is also not insurance but financial returns and insurance has been introduced into the product to make it more attractive. But the issue should have been settled between the regulators through discussions. The SEBI action was also unfair because it was only directed at some private insurance companies while the public sector companies were allowed to market the same kind of products freely. This invited charges of discrimination and arbitrariness. However, the merits of the contending claims are to be decided by the courts now, as both the regulators have been advised by the finance ministry to seek a judicial settlement of the dispute. There is a high level co-ordination committee whose task it is to settle disputes between regulators but this was not approached by SEBI and IRDA in this case.

It is doubtful if the temporary peace brokered by the finance ministry is holding because SEBI has since ordered that all new ULIP schemes should be registered with it. Insurance companies are now caught between the two bodies. Investors will have to wait for a long time for a court decision on the issue and the uncertainty is likely to continue till then. The culture of investments in mutual funds, shares, securities and insurance products has not grown to its full potential in India. The fights and squabbles between regulators and the uncertainties created by them will only discourage people from making such investments.

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