New Delhi/Chennai, June 19 (IANS) Delivering a knock out punch to the Securities Exchange Board of India (SEBI), the government through a ordinance issued late Friday, has unequivocally declared that unit linked insurance policies (ULIPs) are part of the life insurance business.
SEBI had April 9 banned 14 life insurers from selling unit-linked insurance products.
Sensing that its turf was being encroached upon, the Insurance Regulatory and Development Authority (IRDA) asked the insurers to ignore SEBI’s order.
The finance ministry advised both regulators to get the issue resolved through a court.
However, the government declared its intention to support the IRDA in the turf war with the presidential ordinance amending four laws – the Reserve Bank of India (RBI) Act 1934, the Insurance Act 1938, the SEBI Act 1992 and the Securities Contract (Regulation)Act 1956 to clarify that life insurance business shall include ULIPs or scrips or any such instruments.
President Pratibha Patil, by the Securities and Insurance Laws (Amendment and Validation) Ordinance 2010, amended the four laws to clarify that life insurance business shall include ULIPs or scrips or any such instruments.
The ordinance inserted an explanation to section 2 of the Insurance Act 1938 declaring ‘life insurance business shall include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment and a component of insurance issued by an insurer…’
In order to remove any ambiguity, the ordinance inserted an explanation to section 2 of the Securities Contract (Regulation) Act declaring ‘securities shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act 1938’.
In the SEBI Act, an explanation to section 12 has been inserted to the effect that collective investment scheme or mutual fund shall not include any ULIP or scrips or any such instrument or unit, by whatever name called, which provides a component of investment besides the component of insurance issued by an insurer.
Nullifying the SEBI’s order of April 9, the ordinance categorically declared that the amendments made in the four acts ‘… shall have and shall be deemed to always have effect for all purposes as if the provisions of the said acts, as amended by this ordinance, had been in force at all material times..’
In order to sort out the jurisdictional issues regarding hybrid products – like insurance and mutual fund – a high level committee under the chairmanship of finance minister has been constituted.
The other members of the committee are the union finance secretary, secretary, the department of financial services and the chiefs of four financial regulators – RBI, IRDA, SEBI and the Pension Fund Regulatory Development Authority.
Welcoming the ordinance, V. Srinivasan, chief financial officer of Bharti Axa Life Insurance Company, told IANS in Chennai: ‘The ordinance unequivocally settles the jurisdiction over ULIP. We – the life insurers – along with the IRDA will attend to the products and its sale process.’
According to insurance industry officials, the IRDA had lobbied strongly with the government to win the first round.
‘Now the government’s intention is clear. The ordinance will be passed into a proper law in the course of time,’ another industry official told IANS.