Customers will continue to get insurance cover bundled with mutual funds and many other savings and investment products. The finance ministry has intervened in the dispute between insurers and fund houses to rescind the life industry's ban on providing group life insurance covers to mutual funds.
On Monday, SEBI and IRDA representatives met at the office of the finance secretary's office in the ministry of finance. It was decided in the meeting that IRDA would advise the life council to put on hold the decision to discontinue the offer of group covers on mutual fund products. The insurance regulator has accordingly asked the Life Insurance Council to review its earlier decision to discontinue offer of group covers on mutual fund products. Life Insurance Council had earlier decided to discontinue the offer of group life insurance cover on mutual fund products with effect from October 1, 2008.
It was also decided that SEBI would instruct mutual funds on advertising guidelines for mutual funds with insurance covers. Both IRDA and SEBI chairmen were to look into the issue and submit their feedback to the government. The mutual fund industry had accused the life industry of cartelisation, following an industry level decision not to sell group covers to investment type products that compete with mutual funds.
The dispute over group covers for mutual fund is the second phase of the turf war between life companies and mutual funds. In the first phase, mutual funds were complaining about the insurers stepping into mutual fund territory with ULIPs. Mutual funds decided to get back by offering systematic investment plans (SIPs) with life cover structuring it similar to ULIPs. A handful of companies such as Kotak Mahindra AMC, Birla Sun Life AMC, and Reliance AMC had taken a lead in this direction.
Insurance companies have sought to raise the issue of a regulatory arbitrage since mutual funds are not subject to either capital adequacy norms or even training for agents. They have also complained that mutual funds do not have social obligations that are applicable to insurance companies. Unlike mutual funds, life companies have to do a fifth of their business from rural areas. Also, every insurance agent has to undergo a minimum 50 hours of training and pass a certifying examination before he is allowed to sell.
Fund houses under the aegis of Association of Mutual Funds in India (AMFI) have long been lobbying for greater transparency in the fee structure charged by insurers while selling ULIPs. Last month, they had approached SEBI to permit them to sell insurance products to their investors and collect premium from them.
Interestingly, almost every insurance company in India has an affiliate mutual fund arm, which is part of the insurance company's group. For instance, LIC, LICMF and UTI are government-owned. In the private sector, ICICI, HDFC, Birla, Kotak and Reliance have both insurance as well as mutual fund arms.
On Monday, SEBI and IRDA representatives met at the office of the finance secretary's office in the ministry of finance. It was decided in the meeting that IRDA would advise the life council to put on hold the decision to discontinue the offer of group covers on mutual fund products. The insurance regulator has accordingly asked the Life Insurance Council to review its earlier decision to discontinue offer of group covers on mutual fund products. Life Insurance Council had earlier decided to discontinue the offer of group life insurance cover on mutual fund products with effect from October 1, 2008.
It was also decided that SEBI would instruct mutual funds on advertising guidelines for mutual funds with insurance covers. Both IRDA and SEBI chairmen were to look into the issue and submit their feedback to the government. The mutual fund industry had accused the life industry of cartelisation, following an industry level decision not to sell group covers to investment type products that compete with mutual funds.
The dispute over group covers for mutual fund is the second phase of the turf war between life companies and mutual funds. In the first phase, mutual funds were complaining about the insurers stepping into mutual fund territory with ULIPs. Mutual funds decided to get back by offering systematic investment plans (SIPs) with life cover structuring it similar to ULIPs. A handful of companies such as Kotak Mahindra AMC, Birla Sun Life AMC, and Reliance AMC had taken a lead in this direction.
Insurance companies have sought to raise the issue of a regulatory arbitrage since mutual funds are not subject to either capital adequacy norms or even training for agents. They have also complained that mutual funds do not have social obligations that are applicable to insurance companies. Unlike mutual funds, life companies have to do a fifth of their business from rural areas. Also, every insurance agent has to undergo a minimum 50 hours of training and pass a certifying examination before he is allowed to sell.
Fund houses under the aegis of Association of Mutual Funds in India (AMFI) have long been lobbying for greater transparency in the fee structure charged by insurers while selling ULIPs. Last month, they had approached SEBI to permit them to sell insurance products to their investors and collect premium from them.
Interestingly, almost every insurance company in India has an affiliate mutual fund arm, which is part of the insurance company's group. For instance, LIC, LICMF and UTI are government-owned. In the private sector, ICICI, HDFC, Birla, Kotak and Reliance have both insurance as well as mutual fund arms.
Source: http://economictimes.indiatimes.com/articleshow/msid-3546669,prtpage-1.cms
