Regulatory Currents in Indian Life Insurance: Protecting Investors and Paying Producers
Report Summary
Regulatory Currents in Indian Life Insurance: Protecting Investors and Paying Producers
A pending transfer of regulatory authority for India’s best-selling life insurance product may cause insurers and distributors to change strategies.
Boston, MA, May 21, 2010 – A new report from Aite Group examines the current standoff in India between the country’s capital markets regulator and insurance industry regulator over the sale of Unit-Linked Insurance Plans (ULIPs) — variable insurance products with minimal insurance cover which have been marketed to retail investors as a way to gain exposure to India’s equity markets. The report predicts that a resolution will favor the Securities and Exchange Board of India (SEBI), and looks at potential implications for consumers, advisers, and insurers.
On Friday, April 9, 2010, SEBI announced that it was imposing a ban on the further sale of ULIPs by 14 of the 23 private insurers licensed to sell life insurance products in India. SEBI claims that ULIPs were investment products and, as such, need to be registered with and regulated by SEBI, the capital markets regulator. On Monday, April 12, 2010 the Insurance Regulatory Development Authority, which until then had enjoyed sole jurisdiction over these products, issued a rebuttal, saying that insurers should continue to sell ULIPs. At present, this regulatory impasse has not been resolved, and remains a stalemate of considerable concern to the Indian life insurance industry, given that an estimated 70% of the life insurance policies sold in India in recent years have been ULIPs, making them the most popular way for Indian retail investors to invest in Indian capital markets.
“SEBI’s move, while somewhat shocking tactically, did not come entirely out of the blue,” says Clark Troy, senior analyst with Aite Group and author of this report. “The territorial debate between the two regulators had been going on for months, and is a manifestation of a broader struggle within the Indian financial services industry. The core issues — how to protect investors from aggressive sales practices by intermediaries motivated by commissions while at the same time providing adequate incentive for those intermediaries to sell products — continue to be refined in other markets the world around, including the United States, the United Kingdom, and Australia.”
This 12-page Impact Note contains five figures and one table. Clients of Aite Group's Life Insurance service can download the report.