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J HARI NARAYAN'S INTERVIEW

Irda chairman J Hari Narayan says new ordinance will boost policyholder's confidence in Ulips

Bolstered by the government's clear mandate to oversee Ulips, Irda is now working on making this product more attractive to investors, Irda chairman J Hari Narayan told Hema Ramakrishnan from Bahrain where he has gone to attend the conference of International Association of Insurance Supervisors.

What are you comments on the government's decision to give Irda the right to oversee Ulips?

That is the law. All over the world, Ulips are overseen by the insurance regulator. However, some doubts were raised and the government has clarified them. The Ordinance has made it clear that Ulips are insurance products. This automatically means that Irda has the remit to regulate Ulips. So, the Insurance Act will be amended to cover Ulips in life insurance business. Similarly, the Securities Contracts (Regulation) Act will make it clear that 'securities' will not include Ulips. They will not be categorised as a collective investment scheme or a mutual fund, with the amendments to the Sebi Act. This is a positive development for insurance companies and would also boost policyholders' confidence in Ulips.

Do you think Ulips will attract more investors now than mutual funds?

It is wrong to compare Ulips and mutual funds. They are in two different spaces. Ulips are long-term products and are not fighting in the space of mutual funds.

Are you tightening norms for Ulips further?

We will unveil new guidelines to make Ulips attractive for investors. The lock-in period will be five years. Insurers have to mandatorily offer a life cover, health cover or annuities with the life cover. They can offer all three, but at least one will be mandatory. We also want to ensure that the premium is not front-loaded. However, insurers will have to be given more time to re-design their products and also refile them.

Will Ulips be taxed on maturity?

A pure insurance product is one where the premium paid by the policyholder is less than 5% of the sum assured under the existing income-tax law. The direct taxes code has proposed an exempt exempt exempt tax regime only for pure insurance products. Going by this norm, some products may be exempt from tax at all stages. But products where the premium is higher than 5% of the sum assured will be taxed. If policyholders find it attractive to buy policies that are tax free, insurers will have to re-design their products. It is entirely up to them.

Is the joint mechanism to sort out turf wars between regulators workable?

This mechanism will enable quick resolution of disputes, when there is a lack of clarity over jurisdiction. The panel will give its ruling within three months of reference and regulators will have to comply with it.

Source: The Economic Times