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Monday, June 22, 2009

Pressure on insurance regulator

The Securities and Exchange Board of India's (SEBI) move to abolish entry load from all mutual fund schemes might just be the tipping point for the insurance sector to work on reducing the commission structure.

While the commission structure in the New Pension System (NPS) is very low and mutual funds have zero entry load or commission, ULIPs (Unit Linked Insurance Plans), which are products similar to these, will be forced to bring down their commission structure.

"These issues were raised earlier in the HLCC and I foresee that SEBI and the mutual fund industry will take it up in the committee meeting," said a senior government official on condition of anonymity. He was referring to the High Level Coordination Committee on financial issues.

"There will be pressure on Insurance Regulatory and Development Authority (IRDA) to take some action," he said.

The Pension Fund Regulatory and Development Authority which has the ongoing NPS operating on the lines of mutual funds and to some extent similar to the ULIPs has welcomed the move. "With SEBI's move, NPS is now at par with mutual funds as far as upfront commission is concerned," said D Swarup, PFRDA's chairman. "The market will force the insurance industry to change its commission structure."

The mutual fund industry which was already at a disadvantage as the distributors had higher incentive to sell ULIPs as compared to mutual funds feels that it will hamper business. "Who will sell mutual funds now?" said the disappointed head of a large mutual fund who did not wish to be identified. "If IRDA is not working on reducing their commission structure why is SEBI putting us at a disadvantageous position?"

There are chances of a revision in the commission structure of insurance products as there will be pressure on them from all fronts.

source: Hindustan Times


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