Mumbai: Life companies have expressed concern that sale of insurance cover by mutual funds could undermine the distribution infrastructure of life companies. They have also complained to the regulator that such a move would end up violating guidelines of the insurance regulator. This is the latest in the ongoing turf war between the mutual fund and the life insurance industry. Mutual funds have been attacking insurers over the lack of transparency and high charges in unit-linked insurance plans — insurance products that mimic mutual funds. Insurers have responded saying they are only exploiting the failure of the mutual fund industry to build a distribution force to sell to retail. Mutual funds have decided to get back at insurers by introducing systematic investment plans (SIPs) with a built-in life insurance cover. The insurance covers on the SIP were small and given away without any charge to the investor. Now, the mutual funds have submitted a proposal where they will sell insurance cover against which premium will be collected. Speaking to ET, Life Insurance Council chief executive SB Mathur said: “Insurance companies are spending hundreds of crores on training agents to sell insurance. If mutual fund distributors are allowed to sell insurance without adequate training, the sanctity of the training would be lost.” According to Mr Mathur, so far the insurance cover has been restricted to the target investment value (the total amount expected to be saved under a systematic investment plan). However, if mutual funds were given too much flexibility in the level of insurance cover, it could weaken the quality of underwriting and safeguards followed by life insurance companies. Insurers also point out that according to IRDA guidelines, any buyer of insurance should be made aware of the name of the company from which he is buying insurance. In the past, the regulator had barred people from naming products in such a manner that it is identified predominantly with the distributor. The other issue raised by life insurers is that of the social obligation of insurance companies. The directive to sell over a fifth of their policies in the rural sector has forced companies to invest in rural areas where costs are averaged out because of sales in urban areas. Mutual funds have no such obligation and sell largely in urban areas. Insurers say allowing them to distribute insurance can lead to cherry-picking by mutual funds.
source: The Economic Times
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