ULIPs should remain commission based, say insurers, as intermediaries play an important role in selling the product
For a long time now, many have commented and expressed their views that insurance agencies’ big ticket success, unit-linked insurance plans (ULIPs) should be a fee-based model and not a commissioned based model. However, insurers disagree with the view, reasoning that intermediaries play a vital role in selling ULIPs—most of them are sold through relationship models and there would hardly be any change in the cost for the consumer to pay.
“How would the fees be decided? For that matter, how would an employee or agent be motivated to bring in more renewals? It is definitely not feasible,” a top official from Bajaj Allianz said. Most ULIP products are sold in rural and semi-urban areas.
Rajesh Sud, managing director and chief executive officer, Max New York Life Insurance, said that intermediaries play an important role in the selling of ULIPs to potential consumers. A fee-based model would not be fair to an agent, he added.
“Not many understand the risk we live under—either dying too early or living too long, somebody has to help you understand that risk and appropriately help you understand the product,” Mr Sud said.
Life Insurance Council’s secretary general, S B Mathur said a fee-based model wouldn’t work as nearly 80% of ULIPs are sold in rural and semi-urban parts of India and most of these sales are based on mutual relations. “Most of these sales are relationship-based, where it is very awkward for an agent to charge his client for doing his work,” he said.
The argument lies that ULIPs overcharge consumers, through the commission-based model. As per the Insurance Regulatory and Development Authority (IRDA) rules, agents are entitled to get a commission of up to 40% of the premium in the first year, as compared to mutual funds or pension funds.
Regardless of whether the charges are levied on a fee-based model or commission model, the policyholder’s charges would inevitably not be affected, in fact, he might pay a higher amount, Mr Mathur said.
Unlike mutual funds and pension funds, which are no-load products, ULIPs continue to charge high commissions. In August last year, the Securities and Exchange Board of India (SEBI) had removed loads on mutual funds.
Commenting on mutual funds, Mr Mathur said that mutual funds are not yet a retail-based industry, with 80% of funds still being corporate funds. He also said that their level of operations were only limited to metros and urban areas. “So why extend it to an (insurance) industry, which over a 10-year period has created a huge distribution network and where the sale of insurance is predominantly in rural areas,” he asked.
A fee-based model is considered a fair deal for consumers as it enables them to directly evaluate the service an intermediary gives them and it also compensates intermediaries. It gives the consumer the opportunity to negotiate the fees to be paid to agents instead of the charge being embedded in the premium.
In the past, there were reports circulating that consumers who had invested in ULIPs would be free from this commission from April 2011. However, the insurance regulator has decided to maintain the status quo.
The government has found out that certain companies have been selling medicines at higher prices to consumers than those fixed by the National Pharmaceutical Pricing Authority
The chemicals and fertilisers ministry today said that it has issued demand notices for over Rs2,150 crore to various pharmaceutical companies for overcharging consumers, reports PTI.
The government has found out that certain companies have been selling medicines at higher prices to consumers than those fixed by the National Pharmaceutical Pricing Authority (NPPA), minister of state for chemicals and fertilisers Srikant Kumar Jena told the Rajya Sabha in a written query.
“Based on detection of overcharged cases during August 1997 to April 2010, the NPPA has issued demand notices in 746 cases involving an amount of Rs2,150 crore,” Mr Jena said.
Of this, only Rs192.04 crore could be realised till 30 April 2010, leaving a balance of Rs1,958.39 crore. Out of this, as much as Rs1,877.67 crore is under litigation and pending in various courts, he added.
As per the provisions of the Drug Price Control Order of 1995, the government fixes or revises the price of medicines and no company can sell any scheduled drug at a price higher than the one fixed by it.
SFIO has completed the investigation into SHCIL Services and has issued instructions to initiate prosecution against the company
The Ministry of Corporate Affairs (MoCA) has asked the Serious Fraud Investigation Office (SFIO) to initiate action against SHCIL Services Ltd in respect of violation of various provisions of the Companies Act, 1956. SHCIL Services is the broking arm of Stock Holding Corporation of India Ltd (SHCIL). SHCIL, originally set up as a depository, has been embroiled in a serious scandal that was being investigated by the Central Bureau of Investigation (CBI) and the SFIO.
Corporate affairs minister Salman Khurshid in a written reply to the Lok Sabha said that out of 22 cases, investigation reports in respect of two companies were submitted by SFIO. Necessary instructions for action in respect of violation of various provisions of the Companies Act, 1956, have been issued to SFIO, he added.
According to information available on the NIC server, SFIO has completed investigation of SHCIL Services and issued instructions to file prosecution against the company. The other company is Satyam Computer Services Ltd. The SFIO has submitted its report and issued instructions for filing prosecutions on pure company law violations against Satyam.
Between 2004 and 2009, the SFIO has filed prosecution proceedings in the matter of 32 companies against 632 accused, including individuals as well as companies.
SHCIL, the parent of SHCIL Services has been deeply mired in a controversy for its e-stamping project planned several years ago. Last November, the company announced a staggering cash dividend of 900%. According to informed sources, this entire dividend was the amount SHCIL earned by selling its 2% stake in the National Stock Exchange (NSE) for about Rs250 crore.
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