UTS Voice
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IRDA directs transparency in ULIP products: Aviva & Bajaj Allianz Hit
The Insurance Regulatory and Development Authority of India (IRDA) has banned unit-linked insurance plans (ULIPs) in which charges are based on a complex structure, making it difficult for policy holders to comprehend. Such products in insurance parlance are called actuarial-funded products. The ban would require Aviva Life Insurance to withdraw all its 14 ULIP products, while Bajaj Allianz one of its ULIP s called Capital Unit Gain.
Bajaj Allianz has been directed to withdraw Capital Unit Gain, the deadline for which is the end of next week, while the regulator has been a little considerate with Aviva Life Insurance. Irda has not set any deadline for Aviva to withdraw its ULIP products as the company would need more time to develop new products and then seek the regulator’s approval.
“Bajaj Allianz has been given a time frame of 15 days. Aviva Life will have to introduce a new set of products to replace the ones they are using right now and will , therefore, be given more time, “said CS Rao, chairman, IRDA.
Insurance sources said Bajaj Allianz Life reported a profit of Rs 30 crore in the first quarter of 2007-08 and Rs 63 crore in 2006-07 mainly on account of Capital Unit Gain.Under the other ULIP schemes, charges are deducted upfront when the premiums are paid, which could range up to 40 per cent in the first year, in actuarial funded products, the first-year premium is treated as initial premium and is put under an initial premium and is put under management account called actuarial funding. Every year 5 percent of the premium allocation and another percent cent from the first year premium as initial management cost. So, for every year a customers loses 5 percent as premium allocation and 5 percent as initial management charges. Assuming that the policy tenure is 20 year and the customer wants to withdraw after three years, the policy holder loses 100 percent of premium net of charges, 75 percent of If his policy tenure is a 15 year policy and 50 percent if it is a 10-year policy .
“Acturial-funded products mislead customers into feeling that they have more benefits. While normal ULIP Products charge policy holders upfront for all administration and fund management expanses, an actuarial funded product will spread it over a period of time. So, a policy holder feels that he has got a larger number of units. Such products are not in the larger interests of the policyholders,” said Rao. “In several western countries, regulators realized that these products are misleading and have asked companies to withdraw them,” said Rao. When asked why the Irda approved these products in the first place, Rao said, “It is only after a product is marketed that you realize all the loopholes and then you make a correction. Three weeks ago, the Irda had asked the Acturial Society of India to give its opinion on actuarial funded products and it was suggested that these products are not appropriate .”
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