ULIPs get makeover leaves insurance industry divided

The new guidelines for unit linked insurance plans (ULIPs) have evoked a mixed reaction dividing the life insurance industry, with insurance giant Life Insurance Company of India (LIC) on one side and the private companies on the other. CNBC-TV18 learns that the industry is also likely to voice its concerns on some of the guidelines to the insurance regulator on two accounts. CNBC-TV18’s Avni Raja reports.

The insurance industry is a divided lot. The 4.5% minimum guarantee on pension products seems to be a sticky issue. While the largest players, LIC says that offering a 4.5% guarantee on pension products is not difficult.

But private players insist that it is just not possible.

Kamesh Goyal, Managing Director and Chief Executive Officer of Bajaj Allianz Life, says “If you look at interest rate scenarios which we had in our country about a year back, wherein you had to give 4.5% returns for 30 years, from our company’s perspective, I would never ever be able to justify the risk which the company will have to take for offering such a high guarantee.”

Experts say that this guaranteed return will mean that majority of the corpus will have to invested largely in debt, which will result in reduction in yield over the long term.

Sanjiv Bajaj, Joint Managing Director, Bajaj Capital, says, “What that will do is that a lot of pension money which could have also gone into equity and if a person is planning to have a pension after 30 years it makes more sense for him to be invested in equity, will now be invested more in debt. So that will result in reduction in his yield over a long period.”

CNBC-TV18 learns that the life insurance council is likely to take up this issue on behalf of the industry and will also seek an extension of the September-1 deadline that it currently has to adhere to, because two months is not enough time for a complete overhaul of the ULIP portfolio.

Source - http://www.moneycontrol.com/news/cnbc-tv18-comments/ulips-get-makeover-leaves-insurance-industry-divided_467002.html