Fairval

Notes on Indian equities, sectors and economy

IRDA to fight SEBI

Posted by fairval on April 10, 2010

We should have written this the other way around – SEBI to fight IRDA. But really, IRDA does not really have a chance. It may be able to delay the inevitable, by going to court, but this had to happen. With MFs going no-load, there is no way insurance can charge what it does. Co-incidently, had an intereting chat with the MD of a distribution firm recently, before the SEBI order. This is what he said – “We have a target of Rs 100,000 per month, per distribution agent. He can achieve this by maybe selling insurance to 6 clients, or by selling MF policies to maybe 200 clients. So it is a great challenge to prevent mis-selling (as in, selling wrong insurance policies)”.

So you get the drift – insurnace is too heavily incentivised, creating a lot of scope of mis-selling. So what SEBI is doing is in the right direction.

IRDA’s reaction has been interesting. It has come out vehemently against SEBI. See this para from a press release on its site..

The observance of the above referred SEBI order would cause the stoppage of all renewals of insurance policies already invested by the insuring public, may result in the forced premature surrender of insurance policies causing substantial loss to the policyholder and to the insurers. The effective stoppage of the sale of the said products will cause a complete drying up of the revenue flows to the insurance companies which could disrupt the payment of benefits on maturity, on death and on other admissible claims, putting the policyholder and the general public to irreparable financial loss. The financial position of the insurers will be seriously jeopardized thus destabilizing the market and upsetting financial stability.

IRDA is pretty much admitting that all insurance companies do, is to sell ULIPs.

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One Response to “IRDA to fight SEBI”

  1. Munish Hingorani said

    “Highest NAV guaranteed” is the biggest scam doing the rounds.

    ULIPs have been oversold through emotional adverts. It will be quite a task to nudge people towards term plans that are regarding as “expense” (as opposed to the expensive ULIPs that are considered “prudent investments”).

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