Cut down ULIPs commissions: Parekh

HDFC Chairman Deepak Parekh has sought lowering of agents' commission in unit-linked insurance products ULIPs.

HDFC Chairman Deepak Parekh has sought lowering of agents8217; commission in unit-linked insurance products ULIPs,saying these payouts should not be the same as those in the traditional life insurance policies.

8220;There must be stricter and more stringent distribution norms because you cannot take 40-50 per cent as commission. It is all right in 30-year policy traditional policies like endowment and term insurance to do that,8221; he said.

Such rationalisation of ULIPs commissions could also help narrow the gap between it and mutual funds,he said responding to queries over how a compromise could be reached between insurance regulator IRDA and capital market watchdog SEBI on the ULIPs issue.

The two regulators have been engaged in a public spat over who controls ULIPs,which invest heavily in stocks and bonds and get promoted much more by intermediaries as against mutual funds because of higher commission payouts.

Parekh also suggested that gestation period for ULIP should also be increased and such a change would enable the deployment of funds collected through these instruments to long-term investment projects.

8220;We need more pension funds,we need insurance companies.

But if 90 per cent of every private insurance company and even LIC is buying ULIPs now,they cannot invest ULIPs money in infrastructure.

8220;They have to buy capital market stocks. ULIPs,by their definition,has to invest in capital markets. Traditional insurance policies are bought for long-term and therefore they investment in infrastructure bonds,8221; he said,asserting that the face of insurance sector has to change.

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Parkekh,who wears double hats of heading both asset management company and life insurance arm of HDFC,suggested lowering of commission charges and enhancing life cover on the ULIP schemes as a possible solution to SEBI-IRDA spat.

8220;Both SEBI and IRDA have to come down on their stances and come to a more acceptable level. So,what is necessary here is both have a good point and somewhere in between we have to compromise,8221; he said.

He said that life cover in ULIP should increase and may be the distribution cost of insurance is too high that has to come down.

After Parekh said that the government will soon find an out-of-court solution to the turf war between SEBI and IRDA,insurance regulator J Hari Narayan had the met top Finance Ministry officials last week.

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While Supreme Court has posted the matter for hearing on July 7,Hari Narayan had said after his meeting that the court was expected to hear the transfer petition filed by SEBI and might not decide on the ULIP jurisdiction issue.

The spat broke out in early April when SEBI banned 14 life insurance companies,including HDFC Standard Life Insurance,from raising funds through ULIPs and with the very next day IRDA asking the companies to ignore the SEBI order and do business as usual.