Until recently, Unit Linked Insurance Plans (ULIPs), sold like hot cakes. Investors liked them as ULIPs offered not just insurance cover but also provided tax relief as well as an opportunity to earn market-linked returns. However, as the stock market boomed, the insurance aspect took a back seat as ULIPs were increasingly being seen as more of a tool to make short-term gains. No one cared as long as the stock prices continued their uptrend. But the party did not continue for long. Those who thought that ULIPs could be bought and sold just like stocks, for making short-term gains, were in for a shock, as the stock market meltdown saw stock prices take a severe beating. As the stock prices tumbled, it hit, along with other equity-oriented instruments, ULIPs as well, with most of them reporting erosion in their Net Asset Values (NAVs). Needless to say, this hurt gullible investors who mistook ULIPs as a means for making short-term gains; it also exposed mis-selling by insurance advisors who in their zest to push the product sold it more like an investment product rather than an insurance one. However, to correct that perception, the Insurance Regulatory and Development Authority (IRDA) has come out with a slew of guidelines of ULIPs, which so far enjoyed no regulation at all. But the question is: "To what extent will these measures serve to correct that perception?".
Concerns about IRDA's guidelines are not unfounded. Despite the guidelines, investors rushed to subscribe to existing ULIP schemes, which pushed sales to record highs in the months of May and June, as IRDA's deadline of June 30, 2006, for discontinuing schemes which do not comply with its new guidelines neared. The total sales under individual single premium policies in the month of May alone accounted for Rs. 1,840 cr160% more than April's sales which accounted for Rs. 709 cr. The Life Insurance Corporation of India earned Rs. 6,846 cr between April 1 and June 30, as first premium income for its ULIPs; a spectacular growth of 672% as compared to that of the previous year, with major sales occurring in the last two weeks of June. "We have seen high growth in June before the old products were phased out", said D K Mehrotra, MD, LIC. |
