IRDA, Bajaj want stay against ban on complex Ulips lifted

HYDERABAD\MUMBAI: Insurance Regulatory and Development Authority (IRDA) and Bajaj Allianz Life Insurance will approach the Madras High Court to vacate the stay against the ban on actuarial-funded unit-linked insurance plans (Ulips).

Aviva and Bajaj Allianz Life Insurance — the only life insurers to offer actuarial-funded units — were asked to withdraw their products last month.

In accordance with the directive from the regulator, Bajaj Allianz had informed its agents to stop selling the products. However, two agents of the company have protested against the order on the grounds that it affects their right to livelihood and have obtained a stay from the Madras High Court.

IRDA and Bajaj Allianz (also a respondent in the petition filed by the agents) have decided to move the Madras High Court to vacate the stay on actuarial-funded products. In view of the stay, Bajaj Allianz will have to honour proposals brought in by these two agents until the stay is vacated. However, sources said that actuarial-funded units were unlikely to be reintroduced.

IRDA had decided to ban actuarial-funded units on the grounds that they were too complex for the ordinary investors to understand. Unlike regular unit-linked insurance plans, actuarial-funded unit schemes allow insurers to allocate notional units to the policyholders’ accounts in the first year. The insurers said that the notional units were converted into real money in subsequent years.

Rival insurers, who did not offer actuarial-funded schemes, said that the notional allocations concealed the charges and commissions that were drawn out of the first year premium. This lack of transparency allowed agents to sell these products aggressively without informing them about the restrictive features of the plan.

The downside of actuarial-funded Ulips is that they have a very low surrender value in the initial years compared with regular Ulips. Insurance companies also admit that actuarial-funded Ulips have fallen out of favour in developed markets and this product has been withdrawn from most markets.

However, IRDA has stood by its earlier decision to clear the products stating that there was nothing technically wrong, with actuarial- funded products and they were being phased out because of their complexity.

To ensure that policies are not mis-sold in the future, IRDA has also asked insurance companies to get the policyholders to sign on a copy of the illustration of returns provided by the agent. This signed illustration will now be a part of the policy documentation process and has to be preserved until the maturity of the policy.