SEBI - IRDA Battle

India’s market and insurance watchdogs are at each others' throats, growling and snarling. See how the dirty events unfolded.

Early this month market regulator Securities and Exchange Board of India (SEBI) barred 14 private sector insurers from issuing ULIPs (unit-linked insurance plans) without asking its permission. Within 24 hours, the Insurance Regulatory and Development Authority (IRDA) directed the insurance companies to ignore the market regulator’s order and continue business. Then the Government clarified in Parliament that insurers can do business in equity and bond-linked products i.e., ULIPs as per rules laid down by the insurance regulator IRDA.

ULIPs (unit-linked insurance plans) are insurance products that invest a part of the premium paid by investors in equity or debt instruments, while another part accumulates as insurance. High commissions of up to 40% have motivated the insurance agents to aggressively sell ULIPs in the past few years. ULIPs account for up to 90% of the new business premium for some of the private sector life insurers.

The fight got more spice as IRDA has threatened to ban all policies sold by the Department of Posts (DoP) in case of a failure to comply with its norms. Further adding that compliance with IRDA's norms will actually benefit the department of post.

Be it insurance policies, mutual funds or post-office saving deposits, all these are good investment avenues for Indians. The shameful fighting among regulators and a Government department has left the investors confused. This all has raised a question mark on the effectiveness of financial regulations and coordination among different governing bodies in this country. The legal battle between SEBI and IRDA over ULIPs is set to be fought in India’s Supreme Court.

Setting up of Financial Stability and Development Council (FSDC) as a super regulator may be a possible solution. The finance minister in his 2010 budget proposed to create FSDC with a view to strengthen and institutionalise the mechanism for maintaining financial stability. This Council would monitor macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues. Hope that FSDC turns out to be a coordinator in true sense and not just become an appellate tribunal for regulators.