SB Mathur, a chartered accountant, was chairman of the country's largest life insurance player - LIC. After demitting office, he was the unanimous choice as the secretary-general of the Life Insurance Council. The council is an apex organisation representing the industry. Excerpts from an interview with Arun Iyer.

How do you read the government's decision to ensure that the control and management of Ulips rest with Irda?

Today, we are seeing a situation where we are seeing a convergence in features of financial products. This creates a situation where there may be ambiguity about the role of a regulator. This is not the first time. We have had it in other products like bullion futures, currency futures and the like. The council (Life Insurance Council) only asked for a credible and acceptable machinery which would address all the issues relating to insurance and insurance products. The revised proposals to the direct tax code (DTC) have indicated that Ulips would not be eligible for tax exemption at the time of withdrawals.

As an industry, we had made a detailed presentation to the tax authorities on the issues surrounding Ulips. Even the regulator (Insurance Regulatory & Development Authority) has clearly indicated the type and duration of the products. A move to tax policyholders at the time of withdrawals would be clearly anti-industry and anti-consumer. The DTC's indication that only policies with a minimum tenure of 20 years would be acceptable is incorrect. Even Irda has said the tenure should not be less than five years.

Do you believe that Ulips are getting this kind of treatment due to the focus on the savings perspective?

Financial planning in India has not evolved to such a level where people have different savings products to achieve specific goals. Ulips have both savings and insurance built into them. Guidelines on Ulips have become more transparent and the policyholder also gets the opportunity to decide on the investment profile. While close to Rs 8,500 crore of death claims were paid by the Indian insurance sector in FY10, around Rs 2,500 crore came as death claim payments through Ulips itself. Clearly, there is more to Ulips than just the savings/investment perspective.

There is also a feeling that Ulips are being sold due to the high commissions being paid out by insurance companies... There is only a small proportion of life policies which are being paid by high commissions. We see this happening only in case of policies with low premia rates. While LIC pays 35% commission on such policies, the private sector is allowed to pay up to 40% of the premia. During the last four years, on close to 45% of the new premium policies, the commission paid was less than 2%. Even in case of deferred annuity products, the commission was only 7.5%.

Do you think that Ulips are here to stay in the Indian insurance sector?

Yes Ulips will be here. They have gained acceptance over the years. There is more clarity about the product. Fair returns coupled with other aspects like more transparency have only done the product additional benefit. The renewal premiums for Ulips stood at Rs 8,800 crore in 2006-07, rose to Rs 22,380 crore in 2007-08 and touched Rs 54,200 crore in FY10. Despite the good performance, we believe that things like indexation benefits while available with mutual funds is not provided for in Ulips.

Source: The Economic Times