Insurance regulator IRDA has asked life insurers to make public the
commission they pay to agents for unit-linked products from investors
money, absence of which has been decried by mutual funds as a
disadvantage.
"...it has been decided to disclose the
commission or brokerage payable to an agent or broker explicitly...from
enhanced transparency view point," the Insurance Regulatory and
Development Authority (IRDA) said in a circular.
The move comes
at a time when IRDA is engaged in a public and legal battle with market
regulator Sebi over who controls unit-linked products.
Insurance
companies, by and large, welcomed the decision saying the new rule,
effective from July one this year, will bring about more transparency
by providing prospective policy holders clear information about the
amount that has been collected from them as brokerage or commission.
Mutual Fund industry watchers said now it is up to the investors to decide which product to choose from.
Axis
Mutual Fund Managing Director Rajiv Anand said, "Talking about mutual
funds we have got complete transparency when it comes to the cost or
purchase of a mutual fund product.
Now it's up to the consumers to
choose from various products in the market."
Insurance industry experts said the IRDA move will enable investors to better assess various products.
Commenting
on IRDA's move, Metlife India Insurance company Managing Director
Rajesh Relan said, "It is essential that investors are fully aware of
the key components of the product pricing, which includes mortality
charges and the commission."
"We are maturing as an industry
and IRDA's decision will further help establish insurance products as a
viable long-term investment option," he said.
The IRDA-Sebi
turf war was triggered, apparently after the Mutual Funds industry
complained to Sebi that huge commissions paid by ULIPs to agents put
them at a disadvantageous position. Agents push ULIPs, rather than MFs
as they get huge commission from these insurance products.
Sebi
had banned entry load paid by investors while purchasing mutual funds
schemes. These funds earlier used to pay commission to agents from the
entry load.
The ban on entry load virtually dried-up the source
of commission for mutual fund agents, forcing them to shift to selling
ULIPs.
However, IRDA too had earlier capped the commission
charges on fund management between 2.25 per cent to three per cent of
earnings from these schemes.
About 7.03 crore Ulip polices
involving a total premium of Rs 90,645 crores were in force in 2008-09.
As many as 16.7 lakh policies were sold with a premium of Rs 44,611
crores during April-February 2009-10.
On the other hand, mutual funds have Assets Under Management of over Rs seven lakh crore.
Aviva
India CEO and MD T R Ramachandran said, "With the overall cap on
charges, earlier this year, ULIPs have become even more transparent and
favourable for customers. We welcome this announcement by the regulator
on disclosure of commissions as this will increase customer
confidence."
As the row between mutual funds and ULIPs
deepened, Sebi earlier this month sent notices to 14 life insurers and
later banned them from further raising money from ULIPs, unless they
register themselves with it.
However, IRDA asked insurers to ignore the Sebi order and continue with business as usual.
Amid
the conflicting orders, the Finance Ministry persuaded the two
regulators to jointly seek legally binding order from court over their
jurisdiction over ULIPs. Till then, status quo ante was restored.
Sebi later asked insurers not to issue fresh ULIPs after April nine, when its first order was issued.
