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ULIPs are broadly similar to the mutual funds, except that they are required to segregate a
certain part of the premium towards the life insurance of the plan holder 

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At present, over 70% of the new business premium for most insurance companies comes from ULIPs,
running into thousands. The genesis of the Sebi order goes back to the feud between MFs and
insurance companies.

When the latter started issuing ULIPs about 5-6 years ago, offered huge commissions to insurance
agents and flooded the market with these products which nearly mirrored mutual fund (MF)
products. ULIPs are products that combine insurance and investment for the insured and are mostly
market-linked.

Between 2005 and 2008, when the stock market was on a bull run, MFs lost business but insurance
companies mopped up large sums of money through ULIPs.

In December 2009 and January 2010, Sebi had issued show cause notices to 14 insurance companies
asking them why action should not be initiated against them for issuing investment products without
Sebi͛s permission.

Then IRDA asked all the 14 companies to continue with their business as usual, "notwithstanding the
order of Sebi͟. "The IRDA.. is satisfied that the order of Sebi...will bring the insurance industry to a
standstill which would not be in public interest and would be detrimental to the interests of the
policyholders and prejudicial to the interests of the insurers," the mail noted. Hence, IRDA "directed
to note" all the insurance companies that "they shall continue to carry out insurance business as
usual including offering, marketing and servicing ULIPs in accordance with the Insurance Act, 1938,
Rules, Regulations and Guidelines issued there under by the IRDA."
Four days later, Sebi modified its order and exempted all existing ULIPs from the ban but maintained
that its prior permission was mandatory for issuing new ULIPs.

Then SEBI and IRDA moved to Supreme court to get regulatory control of ULIPs.

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AÊ one of the main contentions for Sebi was that although a ULIP is an insurance product
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Generally there should be a m
r   formed to sort out all the issue regarding hybrid product
like ULIPs.

But in this case the ULIPs should be remaining in purview of IRDA because:

„Ê In all the other countries ULIPs are under the control of insurance regulators.
„Ê In India more than 50% of the insurance product sold is ULIPs.
„Ê other insurance product gets more than 85% of fund from ULIPs, so decision in
favour of SEBI would drastically affect insurance industry.
„Ê Basically the main purpose of ULIPs is to provide life cover for the insurer so it
should be looked as a insurance product.

But the IRDA should enforce some transparency on part of ULIP issuing company regarding the
investment made by the ULIP fund.