IRDA chairman: Highest NAV product is mis-sold

The Insurance Regulatory and Development Authority seems to have woken up to the ill effects of highest NAV product mis-selling. J Hari Narayan has hinted that a few traditional products also could be axed. The regulator is in favour of same insurer for accumulation and annuity phase of pension products

The Insurance Regulatory and Development Authority (IRDA) is closely looking at all the highest NAV products available in the market. "We are looking at all the message around these products, how these products are sold, what the customer understanding is of the product. We feel there is mis-selling in highest NAV products," IRDA chairman J Hari Narayan has said.

It looks like IRDA has made up its mind about showing the door to highest NAV products. The thought has come up after highest NAV products have been in the market for more than a couple of years.

Moneylife has maintained all along that 'highest' NAV unit-linked insurance plans (ULIPs) give suboptimal results and cause confusion for customers. The most important point to understand is that insurance companies are guaranteeing NAVs and not returns!

Late, but IRDA has finally woken up to the way highest NAV products were sold in the market and the perception it was creating in the minds of customers about the kind of returns which could be expected with these products. Most of the investment would be in debt instruments and the returns no better than any other similar investment.

Last year it was Universal Life Policy (ULP) that IRDA suddenly discovered was toxic and decided to scrap it after it was in the market for over a year. It found its way back re-christened as Variable Insurance Policy (VIP). This year IRDA has found a new target, the highest NAV product.

Insurance companies Moneylife has interacted with recently are not happy with the IRDA's hint at scrapping highest NAV products. According to one insurance company head, "It is possible customers feel that they are going to get highest equity market return over the years. More disclosures would be the answer. Removing highest NAV will lower the number of product offerings. In that case, customers should only buy FDs, but that also is subject to mis-selling."

An interaction with agents in the past did reveal the wrong impression given about the amount of equity exposure in the product and the duration of equity over the policy term. Either the insurers were misleading their agents or the agents misleading potential customers.

Some time ago, Birla Sun Life launched 'Foresight' with an offer to put your investments at the lowest NAV in the year and offer highest NAV for returns. The concept was catchy for the layman with the advertisement pitch of not worrying about the entry point in the market. The problem was the way three different calculations were compared to decide how much the customer gets at the end of the policy term. This was beyond the layman's understanding.

IRDA is also looking at traditional products with a low insurance component. According to the IRDA chairman, "The Direct Tax Code (DTC) will enforce a certain premium-to-sum-assured ratio. We want to ensure traditional insurance products comply with the new requirements."

Clearly, traditional insurance products in general are low in insurance component and some which have decreasing sum assured, offering sum assured as specific rate of return on the premium paid and insignificant sum assured, will be the first products that are on the IRDA list to be dropped.

The IRDA chairman is also against the LIC enjoying over 95% market share in annuity products. The IRDA exposure draft of pension products specifies that the customer be restricted to the same insurance company for both accumulation phase and annuity phase of the product.



Deepak R Khemani

5 years ago

IRDA is the biggest culprit by approving these sort of Insurance Plans, They approve a highest NAV plan and then say it is mis sold, they approve a plan which has 100% allocation charge in the first year and private insurance Cos. make merry and then the plan is disallowed,
Birla Sun Life foresight Plan's cannot be understood properly by senior Insurance advisers let alone the common man and the IRDA chairman talks about MIS SELLING?



In Reply to Deepak R Khemani 5 years ago

Everywhere there is entry load ie in Mutual fund, fixed deposit also. No one in any business cannot pass full cream to customer. In Fuel it 100% load. People who dont want to pay entry load should invest directly with PE 0-1 level companies.
Bring any product , Insurance agents have capibalities to convince the customers. If commssion in MF will increase to 10% PA then also they can sell it. No product in this world can be sell without commssion , even poison also. In poison also govt. take tax.....


5 years ago

What is IRDA doing when companies terminate the agent code ? IRDA is ignoring agents interest and allowing companies to digest agents renewals.Which is against insurance act 1938........Harinaryan is most corrupt person . He made nation to loose. If renewals not paid then TDS and service tax not paid. All this he know.....

2G case: CBI told to file law ministry report on telecom firms

Reliance Telecom and Swan Telecom Private Ltd, an alleged beneficiary of the scam, have been taking the defence that they were not 'associate' firms as RTL's stake in STPL was below 10%, as mandated under the guidelines for the Unified Access Service licenses

New Delhi: The Central Bureau of Investigation (CBI) was today directed by a Delhi court to file law ministry report which said that a firm should have more than 10% stake in another for being termed an 'associate', a plea taken by the second generation (2G) scam accused Reliance Telecom and Swan Telecom, reports PTI.

"It is ordered that the CBI would place a copy of the report received by it from ministry of law and Justice through Department of Telecommunication (DoT) on record on 21st September, the next date of hearing," special CBI judge OP Saini said.

Reliance Telecom (RTL) and Swan Telecom Private Ltd (STPL), an alleged beneficiary of the scam, have been taking the defence that they were not 'associate' firms as RTL's stake in STPL was below 10%, as mandated under the guidelines for the Unified Access Service (UAS) licenses.

Essar Telecom, which allegedly created Loop Telecom as its front company to get licenses, has taken the same plea.

"No single company/legal person either directly, or through its associates, shall have substantial equity holding in more than one licensee company in the same service area for the Access Services namely: Basic, Cellular and the UAS.

'Substantial equity' herein will mean 'equity of 10% or more'. A promoter company/legal person cannot have stakes in more than one licensee company for the same service area," the UASL guidelines said.

CBI, on the other hand, has been alleging that STPL was an associate firm of RTL created to circumvent the then guidelines of DoT which debarred existing CDMA players from venturing into GSM segment.

RTL later passed on the control of STPL to promoter and co-accused Shahid Usman Balwa after the DoT allowed it to avail the facility of dual technology, the agency said.

Law secretary DR Meena, in his report to the DoT, had said the term 'associate' could be determined only by applying the 'share-holding' test between telecom firms.

"It is a common mistake to confuse a mere 'association' with a definition of an 'associate company'. Companies may have common interests, common business strategies, financial dealings, business pacts and understandings. It is common knowledge that in the telecom sector, several companies enter into business arrangements for technical support and strategies like sharing of towers.

"To that extent, they certainly have an 'association', but by no means they can be termed as being 'associates' of one another, on that ground. The true test, therefore, is to apply the shareholding test," the report said.

However, the names of accused telecom firms did not figure in the report of the law ministry.

The judge said though the CBI was justified in opposing the plea of the accused, the court was asking for the report as the investigators have left the issue to its discretion.

Initially, the CBI, during the arguments, took the plea that it cannot be forced to bring on record the 'unsolicited' opinion of the law ministry as it had no relation with its probe and filing of the charge sheet in the case.

Later, CBI took a u-turn saying "we leave it to the discretion of the court. It is not a relied upon document.

However, we have no objection, if court wants it."

"The report is largely legalistic in nature clarifying a law point only. The prosecution is not likely to suffer any prejudice by its production. Accordingly, in the interest of fairness of trial and transparency, I deem it proper that a copy of the said report be placed on record by the CBI," the court said.

The court said in the interest of justice, the report be placed on its record.

"The case is still at the initial stage of arguments on framing of charges. The instant case is a case of grave magnitude with unimaginable allegations of corruption. It is trite to remark that justice should not only be done but should also be seen to have been done," it said.

It would now hear arguments on the law ministry report on 21st September on behalf of the CBI and various accused and after that the order on framing charges could be pronounced against 17 persons including former telecom minister A Raja and DMK MP Kanimozhi.


Share prices resume climb: Tuesday Closing Report

Nifty may reach the level of 5,300

Defying global events, the market notched good gains on the back of buying by institutional investors. The Nifty made a seven-day intra-day high (including today) at 5,150. The index has been able to reach at more or less the same level at which the three-day uptrend (ending 8 September 2011) was halted. If the Nifty is able to open in the positive tomorrow and is able to sustain itself above 5,169, then this uptrend may continue. Following this, we may see the Nifty reaching the level of 5,300. The National Stock Exchange (NSE) saw a volume of 53.67 crore shares traded.

The domestic market opened higher today after a 1% loss on Monday, despite a negative closing on the US market overnight and a lacklustre opening in Asian markets this morning. The Nifty added 11 points to open trade at 5,043 and the Sensex rose by 24 points to 16,769 at the opening bell. Early gains were supported by IT and consumer durables sectors.

The opening figure on the Sensex was its intra-day low, while the Nifty fell to the day's lows soon after with the index touching 5,035. Across-the-board buying pushed the indices further northwards as trade progressed. The market touched the day's high at the fag end of the trading session with the Nifty at 5,150 and the Sensex scaling 17,135. The indices closed a tad below those levels. At the close, the Nifty gained 108 points at 5,140 and the Sensex conquered the 17,000 mark again, to settle at 17,099, a jump of 354 points.

The advance-decline ratio on the NSE was 1155:525.

While the Sensex closed with splendid gains, the broader indices were a bit slow in catching up. The BSE Mid-cap index gained 0.90% and the BSE Small-cap index advanced 1.23%.

All-round buying resulted in all sectoral indices closing in the positive. The leaders were BSE IT (up 3.23%), BSE TECk (up 2.79%), BSE Consumer Durables (up 2.74%), BSE Bankex (up 2.31%) and BSE Metal (up 1.97%).

Hindalco Industries (up 4.31%), TCS (up 3.94%), State Bank of India (up 3.78%), Reliance Industries (up 3.73%) and DLF (up 3.46%) were the top gainers on the Sensex. The losers were ONGC (down 2.86%) and BHEL (down 0.81%).

Key stocks that led the Nifty higher were Reliance Capital (up 5.27%), Reliance Power (up 5.01%), Cairn India (up 4.83%), TCS (up 4.51%) and Reliance Communications (up 4.32%). The main Nifty losers were ONGC (down 2.76%), BHEL (down 0.60%), BPCL (down 0.10%), Hero MotoCorp (down 0.05%) and Ranbaxy (down 0.02%).

Markets in Asia capped their gains following news that Standard & Poor's had downgraded Italy's sovereign credit rating by a notch to 'A/A-1'. The downgrade, along with lingering fears over a potential Greek default, pulled down shares in the financial sector. This apart, a media report stated that Bank of China, a leading player in China's foreign exchange market, has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe.

The Shanghai Composite gained 0.41%, the Hang Seng rose 0.51%, the Straits Times climbed 0.86%, the Seoul Composite advanced 0.94% and the Taiwan Weighted added 0.16%. On the other hand, the Jakarta Composite shed 0.08%, the KLSE Composite lost 0.18% and the Nikkei 225 declined 1.61%.

Back home, institutional investors-both foreign and domestic-were net sellers in the equities segment on Monday. While foreign institutional investors sold stocks worth Rs166.21 crore, domestic institutional investors offloaded stocks worth Rs37.50 crore.

Subex, a leading global provider of business support systems for communications service providers, today announced the signing of an asset purchase agreement with NetCracker for sale of its activation business. The decision to sell the activation business is an outcome of a change in the company's strategy to focus on its core products, ROC Solutions (revenue assurance, fraud management, partner settlement, data integrity management, etc) and managed services, the company said. Subex settled at Rs48.60 on the NSE, up 3.51% over its previous close.

IT services major HCL Technologies today said it will establish a software delivery centre in Dublin, Ireland, that will create 80 jobs for IT graduates over three years. With this centre, HCL will service a growing number of HCL clients and prospects in the financial services, insurance and healthcare/pharmaceutical industries. The stock jumped 2.73% to close at Rs403.05.

The Mint business newspaper reported today that the Central Bureau of Investigation (CBI) is mulling filing a case against Reliance Industries (RIL) over alleged favoured treatment for its operations of gas blocks in the Krishna Godavari (KG) basin. The agency is checking whether penalties for failing to meet commitments were reduced, if state-run companies were forced into rig-sharing arrangements favourable to RIL and whether officials favoured the company in allowing it to raise capital expenditure for the KG block. Despite the news, the stock gained 3.72% to close at Rs852.10.


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