Insurance Regulatory and Development Authority won’t take on Sebi

The Insurance Regulatory and Development Authority (Irda) is unlikely to drag the Securities and Exchange Board of India (Sebi) to the court as it is not directly a party to the issue yet. However, it is willing to back insurance companies to take on the market regulator.

“We have not received any notice from the Sebi so far. The notice was issued to the insurance companies. Assuring the insurers and the insured, the regulator has already clarified its stand. The insurance companies are now debating on taking the issue forward. I think there will be more clarity on the issue by Monday,” Irda member R Kannan told DNA.

“Technically, we are not a party to the dispute since we have not been served any notice. But, we will extend all the support to the insurance companies if they are fighting it out,” he said.

Interestingly, the insurance companies are not keen on approaching the Securities Appellate Tribunal since the tribunal itself was created by the Sebi and could have a bias in the issue.

According to sources privy to the developments within the Irda, the key to the problem lies within the Securities Contract (Regulations) Act, 1956.

“The Act clearly exempts insurance contracts from the definition of “securities”. The Act applies only to the instruments that are traded in the market. In the case of insurance products, they are not traded in the market. May be some terms used in Ulips are similar to those used in the mutual funds. In that case, several banks too use the terms that are used in mutual funds. Does that mean the RBI should be sidelined and the banks too should go and seek a registration with the Sebi?” the source asked.

Sebi whole-time member Prashant Saran, who signed the order against 14 private insurance companies, had noted, “It has been contended that Ulips are a life insurance product and life insurance products are not covered under Securities Contracts (Regulations) Act, 1956… Merely because they are named as units of Ulips, such units cannot be ousted from the ambit of definition of “securities.””

Sebi’s contention is that the portion of the premium going towards actual insurance in an Ulip is minuscule and hence the investment components are in the nature of mutual funds which can only be offered/ launched after obtaining registration from Sebi.”

In fact, the Irda top brass is of the view that the entire process of insurance reforms would come to a halt now with the insurance companies getting dragged into an unwanted controversy.
Sources are also miffed at the way the Sebi has taken a differential view in issuing notices by exempting the state-owned LIC. “This is giving an impression of the market regulator creating a rift between the public sector and private sector insurance companies,” the source said.