INSURANCE BLUES:IRDA bans acturial funded products

The Insurance Regulatory and Development Authority, or IRDA, has decided to ban unit linked insurance products, or ULIPs, that are too complicated for the customer to understand, reports CNBC-TV18.

Among the products to be pulled off the shelf, in the next fortnight, is Capital Unit Gain, Bajaj Allianz Life's most popular product. This product was solely responsible for the Rs 90 crore profit recorded by the company this year. The regulator has given Bajaj Allianz 15 days to pull the product off the shelves.

Apart from that, Aviva Life also has five acturial funded products.

IRDA has decided to ban acturial funded products. This means that while normal ULIP products charge you upfront for all the charges of administration and fund management, an acturial funded product will not charge you upfront. They will invest all your money on your behalf and will charge you at the end of every month, by deducting some money out of your unit fund.

The IRDA has decided that these products are really too complicated for a consumer to understand how much at risk he is and what sort of charges are being deducted from his fund. So, they have decided to ban the fund altogether from the market.

The biggest product that is acturially funded in the market right now is Bajaj Allainz Life's Capital Unit Gain. It was mostly responsible for Bajaj Allianz breaking even last year and recording a profit of Rs 9 crore last year and in the first quarter of this year.

“The committee of acturists have looked into it and have suggested that the acturial funding may not be appropriate. Though, technically, there is nothing wrong with it, but the product is so complicated the investor does not know what risk he is running. So, they suggested that this may be withdrawn and we are going to take action about it,” said C S Rao, Chairman, IRDA.

Another company that is going to be drastically hit is Aviva Life. It has 14 ULIPs, most of which are acturially funded products. So, their entire bank of unit-linked products are going to be wiped out and they are going to have to replace them.

The IRDA will give 15 days to pull the product of the shelves. Aviva Life is going to have to introduce a whole new set of products to replace the ones they are using right now and may probably be given a little more time than 15 days.

It is clear that these companies will have to completely rework their entire product strategy as these products are were really the pillars of their business right now.