Regulator acts like an industry association; IRDA promotes ULIPs!

The insurance regulator has launched an unprecedented advertising campaign, hard-selling ULIPs. Not only is this a bizarre action for a regulator, but the ad is also misleading as it fails to provide any concrete evidence of ULIPs’ superior performance

Can you imagine the Reserve Bank of India (RBI) hard-selling recurring deposit schemes of banks or the Securities and Exchange Board of India (SEBI) bombarding investors with ads asking them to buy infrastructure funds? That is exactly what the Insurance Regulatory and Development Authority (IRDA) is doing.

IRDA recently launched an advertising campaign promoting unit-linked insurance plans (ULIPs) for pensions. The ads seek to educate investors of the benefits of ULIPs in providing for regular income or pension during retired life. However, in its attempt to hard-sell ULIPs, IRDA has brought out an ambiguous and misleading ad.

A ULIP is a life insurance policy, which provides a combination of risk cover and investment. It is the most common ‘insurance’ plan sold by life insurers and is quite popular among investors, thanks to massive promotions and incentives. The ad basically tries to impress upon the reader that a ULIP is a sound investment option if one is looking out for regular income during retired life. However, there are several issues with the claims made in the ad.

First, it has failed to substantiate this argument with any comparative indicators as to the returns that the product is likely to generate over a period of time. The ad provides no factual basis for making claims that ULIPs are the right product to ensure that you are well-provided for in your retirement. There is no comparative data of the returns of other long-term investment products, to underline ULIPs’ superiority.

The fact is that IRDA or anybody cannot provide this comparative information. This is simply because ULIPs have no track record. Who can say how ULIPs would do over, say, 30 years? Even products with established records do not perform as per their promise. What if ULIPs turn out to be the worst option between bank recurring deposit schemes, balanced funds, New Pension Scheme and even diversified equity funds? There is no guarantee that a ULIP will provide the holder with a safe kitty once he reaches retirement. If so, is the regulator pushing the investors into a wrong product?

Second, what is the rationale behind the insurance regulator recommending an investment product? The main purpose of insurance is to provide protection to the policy-holder and is not meant for generating investment returns.

Third, the ad also appears vague in advising the reader on the tenure of investment. It says, “If the term is too short, the policy accumulation would be insufficient for a pension corpus. If you stretch the term too long, you may end up being required to pay premium when you would actually like to receive pension payouts.” The obvious question that arises here is what term or period is ideal for a ULIP? The ad leaves this bit of information hanging in thin air.

Fourth, as we mentioned in the beginning, it is bizarre that IRDA as a regulatory authority should be expounding the benefits of a single product type. The fact that it is touting the benefits of ULIPs while ignoring other products is surprising. If instead it were to launch a public awareness campaign highlighting the benefits of insurance, it would make more sense.

Interestingly, IRDA’s advertising blitz comes at a time when it is waging a war with SEBI over the regulatory purview of ULIPs. Moneylife tried contacting some industry experts on their views on this matter, but no one appeared to be willing to speak on this strange ad. 

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    sanjay singh

    1 decade ago

    ULIP is probably the best thing to have happened to the insurance industry in a long time. Majority of the people who comment against ULIPs are those who have little or warped knowledge of this product. I am not saying that there is no misselling of ULIPs at all. But don't blame the product for the misdeeds of the few. Sell / Buy ULIP as a long term insurance plan with a high insurance cover. And you will never lose


    1 decade ago

    It's a shame that instead of regulating the ULIPs, especially expenses and the mis-selling parts, IRDA is promoting ULIPs. In my opinion, the minimum period of investment of ULIPs should be raised to a minimum of ten years to prevent so much mis-selling by the agents who just states that the insured needs to remit money for just three years. They are even advising investors withdraw the money after three years and re- invest to generate exorbitant commissions. At least the collection of some charges by the companies by the cancellation of the units should not be allowed in any case. If the IRDA allows such daylight robbery, may I ask why they are still called a regulator.


    1 decade ago

    What is the issue:-
    Govt marketing
    or wrong marketing
    If issue is Govt marketing point taken but then govt does market many products, ULIP is just another... maybe there was a better way to do it
    Wrong marketing- if pvt company does its all ok, ig govt does any advt... we rape is thread bare! Actually we r double standarded


    1 decade ago

    There are many instances now that Highest NAV Gauranteed products are sold by distributing pamphalets that guarantee high figures sometimes even bearing Company logos.
    IRDA does nothing.
    And why buy a product that has such a high cost?
    SIMPLE-Your AGENT & his company wants to become rich by taking money from your pocket.

    Anadi Shankar Biswas

    1 decade ago

    A timely & good article. These days ULIPs are being blatantly mis-sold & the LIC of India has also joined the band-wagon since 2007 (Money Plus days). The IRDA should take steps to stop mis-selling. Like in Mutual Funds some statutory warning should be boldly printed in the ads & application forms like "Investment in ULIPs are subject to market risks & the buyer should satisfy himself of the monetary returns before buying the L I policy"


    1 decade ago

    ULIP is probably the best thing to have happened to the insurance industry in a long time. Majority of the people who comment against ULIPs are those who have little or warped knowledge of this product. I am not saying that there is no misselling of ULIPs at all. But don't blame the product for the misdeeds of the few. Sell / Buy ULIP as a long term insurance plan with a high insurance cover. And you will never lose


    1 decade ago

    Each ULIP scheme should clearly mention how much expenditure is incurred on the investment and the track record clearly.
    IRDA is like what was SEBI intially.

    Hemant Beniwal

    1 decade ago

    Insurance in India is an institutional Fraud.

    dillip swain

    1 decade ago

    First chairman of irda who was chaired without life cover. In orissa there is a saying 'BANJHA KI JANE PRASABA BEDANA'.So X-chairman forming rules without buying life insurance.Now New chairman campaining ads in favour of ulip,why not TERM INSURANCE.It is millibhagat work between L.I. companies & irda.govt should form a separate to watch role of irda .

    R Balakrishnan

    1 decade ago

    It is a wake up call for a dodo organisation called AMFI. This has provided the right opportunity to respond with aggressive advertising, stripping the ULIP bare.
    Alas, AMFI will NEVER wake up. The old team did NOTHING and the new avatar it is taking is becoming a division of SEBI.
    SEBI, of course, promoters insurance, by hitting at mutual fund industry.

    Mehul Mehta

    1 decade ago

    Unsure of what it's supposed to do to be in the limelight or to make its presence felt, IRDA seems to have been misguided by marketing geniuses. Shall we say IRDA now means I'd Rather Do Ads...


    1 decade ago

    IRDA has lot of DEAD WOOD of aged persons -may be retired from LIC/GIC who have not been trained to learn difference between Protection ( Insurance ) and Investment.

    IRDA and its officials ARE NOT AT FAULT. GOD only can save indian policy holders and investers.

    I fail to understand how IRDA will protect policyholder's interest???


    1 decade ago

    Thanks for being bold!

    priya Kapoor

    1 decade ago

    Yeah..I also came across this advertisement by IRDA and was wondering how can a regulator promote a particular product without any comparitive analysis with other products. Though ULIP is beneficial in the long term, it doesn't imply that it would work the same for every individuals as socio-economic condition, risk appetite and responsibilities of each is different. Also, he may achieve the same goal by investing in other products..Such a hard selling ad by the regulator is certainly worrisome...I endorse that a general ad about significance of insurance would have hold it in high esteem rather than trying to hard sell a particular product.

    R Murugan

    1 decade ago

    I had some time back sent photocopy of a pamphlet circulated by an agent of SBI Life promising very high returns on some SBI life schemes to IRDA and SBI Life.
    IRDA replied that the mail had been forwarded to SBI Life. SBI life said the agent had been informed not to mislead the public. IRDA did the job of a post office and naturally SBI Life did not bother to take any punitive action against the agent.This is the sorry state affairs.

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