Insurance agents are on an overdrive, pitching highest NAV ULIPs as a ‘limited-time’ opportunity. They understand the customer psyche of wanting something that may soon be out of reach, with the strong possibility that IRDA might crack down on these instruments

The Insurance Regulatory and Development Authority (IRDA) seems to have woken up to the ill-effects of highest NAV (Net Asset Value) unit-linked insurance plans (ULIPs) mis-selling. With the possibility of IRDA showing the door to these products, agents are on an overdrive to push these products as a 'limited-time' offer. SMS messages are doing the rounds (despite the Telecom Regulatory Authority of India banning spam SMSs), with some making unrealistic offers.

Last year, agents were pushing ULIPs with great zeal before the 1 September 2010 regulatory changes. It made a whit of a difference that the new ULIPs under IRDA's fresh policy were going to be better than the old products that were being peddled. Now history is repeating itself. Don't fall for the highest NAV ULIP trap this year.

Moneylife has received a couple of SMSs which could be from dubious agents. Here's what the first SMS says (reproduced verbatim, not corrected for grammar)—"HDFC Life CREST—with highest NAV guaranteed fund. No medicals. Pay for 5 years only. Open for limited Period. Buy now." The second SMS -"ICICI's Pinnacle 110% highest NAV guaranteed scheme end on 30 Sep. Benefits include 24% return on Day1, 10 times cover, 100% tax free return."

Interaction with agents in the past few weeks revealed that the wrong impression was being given to customers about the amount of equity exposure in the product and the duration of equity investment over the policy term. Either the insurers were misleading their agents—or the agents were misleading potential customers. Either way, the potential customer stands to lose.

Moneylife has maintained all along that highest NAV ULIPs give suboptimal results and cause confusion among customers. The most important point to understand is that insurance companies are guaranteeing NAVs and not returns! The perception that it was creating in the minds of gullible customers was about getting highest equity returns. Most of the investment would be in debt instruments and the returns would be no better than any other similar investment.

IRDA is closely looking at all the highest NAV products available in the market.

According to IRDA chairman J Hari Narayan, "We are looking at all the messages on 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."

Insurance companies Moneylife has interacted with recently are not happy with IRDA's hint at scrapping highest NAV products. According to an insurance company head who spoke to Moneylife, preferring anonymity, "It is possible customers feel that they are going to get highest equity market returns over the years. More disclosures would be the answer. Removing highest NAV will lower the number of product offerings. In that case, customers should go in for FDs (fixed deposits) for assured returns—but even that product is also subject to mis-selling."

According to Deepak Sood, MD & CEO, Future Generali India Life Insurance, "We are not selling highest NAV ULIPs any more. My opinion is that freedom should be left to the company based on its customer analysis. IRDA can make improvements at the product level rather than take action at the category level; otherwise, it will restrict the choice open to the customer. I understand IRDA may be looking at the larger interest of the market. The concept is followed outside India too. The misinterpretation by customer about getting highest equity market return can be addressed by education, transparent brochures and documents."

But the bottom-line, as Moneylife has clearly spelt out over a number of articles, is that insurance should never be looked at as a platform for delivering returns.