Insurers fret over high ULIP demand

Life insurers warn agents that action will be taken if they indulge in wrong selling of ULIPs.

With the Bombay Stock Exchange Sensex scaling new peaks, investors are flocking to life insurance companies to buy unit-linked insurance policies (ULIPs).

But this has made life insurers extremely cautious. Life Insurance Corporation (LIC), SBI Life Insurance and ICICI Prudential Life Insurance have instructed their agents against pushing the ULIPS for now.

The ULIPs are insurance products and a part of the premium paid on them goes towards risk coverage. The balance is invested in equity and debt in proportions depending on products.

Life insurers want to ensure that the ULIPs are sold only to people who understand stock market movements and not to those who want to invest in them just because the stock market is rising.

SBI Life Insurance's Chief Investment Officer S Chandrashekhar said, "Investors should concentrate on their needs. ULIPs may not give them better returns all the time as all asset classes may not have a bull run simultaneously."

Life insurers said they have warned their agents that action will be taken against them if they indulge in wrong selling of the ULIPs.

"We do not want to take any chances. The instructions to the agents are precautionary steps to prevent the craze for investing in the ULIPs from turning into a mass bad investment decision in the event of stock prices falling sharply," LIC executives said.

Insurance companies have been facing criticism for wrongly selling the ULIPs for some time now. The Insurance Regulatory and Development Authority (IRDA) is also seized of the matter and has already announced its intention to come out with detailed guidelines for the ULIPs.

Major life insurers are witnessing a sharp growth in the share of the ULIPs in their premium income for about a year now. The ULIPs accounted for 43 per cent of LIC's first premium income in the first quarter of 2005-06 against 16 per cent in the same period of 2004-05. ICICI Prudential's ULIP sales contributed 86 per cent of its premium income in the first quarter.