ULIPs back in vogue; regulators keeping a watch

As ULIPs or market-linked insurance products come back in vogue with huge volumes after taking a big hit in 2008 meltdown, regulators are keeping a close watch on reversal of trends as also to ensure that investors are not taken for a ride with such schemes.

New Delhi: As ULIPs or market-linked insurance products come back in vogue with huge volumes after taking a big hit in 2008 meltdown, regulators are keeping a close watch on reversal of trends as also to ensure that investors are not taken for a ride with such schemes.

Before the meltdown of 2008, ULIPs were very popular, including through large-scale mis-selling, but a plunge in stock markets led to huge losses for investors as also for fund managers.

As markets gain momentum, investors are again being lured into investing in ULIPs, but they may face the heat in case markets fall.

Industry data shows that all companies, including LIC, selling purely traditional products have registered a decline in sales.

On the other hand, ULIPs have been driving growth for some players, including some large insurers and those promoted or supported by banks.

Expressing concerns over this trend, leading life insurer Reliance Life's CEO Anup Rau said this reversal of trend would hurt the industry and the regulator is already looking into the matter.
"After the 2008 meltdown, almost all companies swore not to sell ULIP products and stick to long-term traditional products.

"However, with markets showing healthy gains, this trend is in fact reversing. Unless the policies are bought with a long-term horizon, when the cycle the turns, we will see erosion in the AUM and a drop in persistency. This will also hurt the industry,".

Top executives of some other private insurers also expressed similar concerns. However, those with ULIPs accounting for a significant part of their portfolios said that these concerns are mis-placed and the industry has already learnt its lesson from 2008 meltdown.

Asked whether the regulator needs to intervene so that there is no over-dependence on ULIPs, Rau said, "I think IRDA is already sensitive to this growing trend.

"They have already defined guidelines and are monitoring these trends for appropriate actions."