"The proportion of sale of ULIP products has certainly come down. When compared to last year, ULIP business has gone down by about 15 per cent," IRDA Chairman J Harinarayan told reporters on the sidelines of FICCI National Conference on Insurance.
ULIPs -- which are hybrid insurance products in which a portion of the investor's premium is invested in equity -- became a subject of controversy after market regulator Sebi in April last year banned private life insurance companies from issuing such schemes. Soon after, IRDA issued a order asking insurers to ignore Sebi order.
After the government directed that IRDA would have jurisdiction over ULIPs, the insurance regulator came out with new guidelines for such equity-linked products in September last year.
ULIPs, which used to be around 60 per cent of life insurers business prior to the guidelines, saw a decline as agents shifted focus to traditional products.
As per the new IRDA guidelines, the commission paid to distributors and expenses charged by insurers will no longer be front-loaded and will be distributed over the lock-in period of the schemes, which has been raised to five years from three years earlier.
Though the new rules will benefit policy holders, reduce the first-year agent commission and help in curbing rampant mis-selling, insurance firms will be required to underwrite more losses, infuse more capital and cut costs to sustain ULIP sales.
Furthermore, IRDA has fixed the floor on guaranteed returns from ULIP pension plans at 4.5 per cent, which will greatly benefit policyholders saving up for retirement.
Along with these changes, the regulator has fixed stringent minimum disclosure guidelines for insurers.
Under the new disclosure norms, agents cannot take policyholders for a ride, as they can now see the financial position of the company over the website and do not need to depend on agents, said an industry expert.
The life insurance industry has grown 8-fold in the past decade--from a total premium income of Rs 34,892 crore in 2000-01 to about Rs three trillion in 2010-11. Over Rs one lakh crore of total premium is estimated to have come from ULIPs in 2010-11.
