ULIPs BACK

As ULIPs or market-linked insurance products come back in vogue with huge volumes after taking a big hit in 2008 meltdown, regulators are keeping a close watch on reversal of trends as also to ensure that investors are not taken for a ride with such schemes. Before the meltdown of 2008, ULIPs were very popular, including through large-scale mis-selling, but a plunge in stock markets led to huge losses for investors as also for fund managers. As markets gain momentum, investors are again being lured into investing in ULIPs, but they may face the heat in case markets fall. Industry data shows that all companies, including LIC, selling purely traditional products have registered a decline in sales. On the other hand, ULIPs have been driving growth for some players, including some large insurers and those promoted or supported by banks. Expressing concerns over this trend, leading life insurer Reliance Life's CEO Anup Rau said this reversal of trend would hurt the industry and the regulator is already looking into the matter. "After the 2008 meltdown, almost all companies swore not to sell ULIP products and stick to long-term traditional products. "However, with markets showing healthy gains, this trend is in fact reversing. Unless the policies are bought with a long-term horizon, when the cycle the turns, we will see erosion in the AUM and a drop in persistency. This will also hurt the industry," Rau told PTI. Top executives of some other private insurers also expressed similar concerns. However, those with ULIPs accounting for a significant part of their portfolios said that these concerns are mis-placed and the industry has already learnt its lesson from 2008 meltdown. Asked whether the regulator needs to intervene so that there is no over-dependence on ULIPs, Rau said, "I think IRDA is already sensitive to this growing trend. "They have already defined guidelines and are monitoring these trends for appropriate actions."

Rau further said that the insurance sector regulator had introduced major changes in the ULIPs, sometime in 2010, making it more affordable for the investors. "From the regulatory point of view, that's the best it can do. Some of the changes included cap of charges which restricts the cost to customer, minimum lock-in for five years, ceiling on surrender charges, discontinuance fund concept, and capping the difference limit between charges in the five years. "All this has made ULIPs relatively safer but the choice of taking or not taking ULIP is with the customer." Rau said investors should first get adequate protection cover --- usually 8-10 times their annual earnings - followed by long-term savings options where ULIPs come in. "However, ULIPs get sold as short-term gain/investment products which pose a problem. For an insurer, the appropriate yardstick to measure the exposure to ULIPs should be the average vintage of the policies in the portfolio. "However, a major chunk of business share from ULIPs in an insurer's portfolio may not be good for customers," he added.