Reveal ULIP commission: IRDA to insurers

The move comes at a time when IRDA is engaged in a public and legal battle with market regulator Sebi over who controls unit-linked products.

Insurance companies,by and large,welcomed the decision saying the new rule,effective from July one this year,will bring about more transparency by providing prospective policy holders clear information about the amount that has been collected from them as brokerage or commission.

Mutual Fund industry watchers said now it is up to the investors to decide which product to choose from.

Axis Mutual Fund Managing Director Rajiv Anand said,”Talking about mutual funds we have got complete transparency when it comes to the cost or purchase of a mutual fund product. Now it’s up to the consumers to choose from various products in the market.”

Insurance industry experts said the IRDA move will enable investors to better assess various products.

Commenting on IRDA’s move,Metlife India Insurance company Managing Director Rajesh Relan said,”It is essential that investors are fully aware of the key components of the product pricing,which includes mortality charges and the commission.”

“We are maturing as an industry and IRDA’s decision will further help establish insurance products as a viable long-term investment option,” he said.

The IRDA-Sebi turf war was triggered,apparently after the Mutual Funds industry complained to Sebi that huge commissions paid by ULIPs to agents put them at a disadvantageous position. Agents push ULIPs,rather than MFs as they get huge commission from these insurance products.

Sebi had banned entry load paid by investors while purchasing mutual funds schemes. These funds earlier used to pay commission to agents from the entry load.

The ban on entry load virtually dried-up the source of commission for mutual fund agents,forcing them to shift to selling ULIPs.

However,IRDA too had earlier capped the commission charges on fund management between 2.25 per cent to three per cent of earnings from these schemes.

About 7.03 crore Ulip polices involving a total premium of Rs 90,645 crores were in force in 2008-09. As many as 16.7 lakh policies were sold with a premium of Rs 44,611 crores during April-February 2009-10.

On the other hand,mutual funds have Assets Under Management of over Rs seven lakh crore.

Aviva India CEO and MD T R Ramachandran said,”With the overall cap on charges,earlier this year,ULIPs have become even more transparent and favourable for customers. We welcome this announcement by the regulator on disclosure of commissions as this will increase customer confidence.”

As the row between mutual funds and ULIPs deepened,Sebi earlier this month sent notices to 14 life insurers and later banned them from further raising money from ULIPs,unless they register themselves with it.

However,IRDA asked insurers to ignore the Sebi order and continue with business as usual.

Amid the conflicting orders,the Finance Ministry persuaded the two regulators to jointly seek legally binding order from court over their jurisdiction over ULIPs. Till then,status quo ante was restored.

Sebi later asked insurers not to issue fresh ULIPs after April nine,when its first order was issued.