The Insurance Regulatory and Development Authority (Irda) and the Securities and Exchange Board of

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India (Sebi) are at war.

Irda has strongly reacted to Sebi’s move on Friday to bar 14 life insurance companies from selling unit-linked insurance policies (Ulips) and collecting renewal premiums, and asked insurance companies to ignore Sebi order and carry on with their business.

“Barring insurance companies from selling Ulips is endangering financial stability. It is to the law to decide under whose jurisdiction Ulips fall,” said J Hari Narayan, chairman of Irda. He told Financial Chronicle in a telephone interview that life insurance companies should not be treated like small brokers operating through shady joints and barred from selling Ulips. Excerpts:

By asking life insurance companies to continue business as usual and sell Ulips, have you not put them in a spot? This can invite legal action against them.

The legal issue of in whose jurisdiction does it fall and under whose it doesn’t, I have not addressed because I am not competent to answer that. This will be decided in the court of law or by the government or by the parliament. All I have tried addressing through this order is to ensure the industry doesn’t collapse. If you stop taking renewal premiums then the policies will lapse and the entire industry will be affected. This hampers financial stability. This cannot be done so casually. Sebi cannot ask firms to stop collecting money without understanding what the implications are.

So are you planning to move the court?

The persons (life insurance companies) who are affected by the Sebi order will move the court of law or may not choose to approach the law. I am trying to administratively address the issue and not through law. We have done what we had to, now it is Sebi’s turn to do their bit.

Do you see the investment component of Ulips regulated by Sebi and the protection part by Irda?

Do you want to say that traditional investment products are not an investment product? Does not then recurring deposits collected by post office schemes and banks akin to systematic investment plans (SIPs)? Then does that mean Sebi should also regulate banks. One should understand that in financial sector many products will look similar, and, after all, everyone is investing somewhere or the other. One needs to understand the differentiating characteristics of those products clearly.

The whole issue is not about how money is allocated but how it is collected. What are your views on that?

The money is collected thr­ough a completely transparent and regulated pro­cess and products.

In traditional policies, asset allocation is already fixed, where 50 per cent has to go to government securities, 35 per cent to approved investment and 15 per cent in other than approved investment, and overall 15 per cent in infrastructure with other sectoral caps, hence the portfolio is set. Only difference in the case of Ulips is that the option is little more flexible and skewed towards equity participation.

But Sebi has contended that Ulips are being sold like collective investment schemes and hence they fall under its purview?

If you go through the order, in one of the paragraphs, Sebi has said that it will evolve the regulations to bring Ulips under its ambit. What does this mean? Are they saying we will regulate something when they don’t have proper regulations in place?

Insurance companies should not be treated like a small broker operating out of a shady joint. Insurance industry is highly regulated and all their products are highly regulated. Remember that for a life insurance company to manage

Rs 6,000 crore of funds they have to bring in capital worth Rs 600 crore but for a mutual fund company that managed Rs 50,000 crore, they can get away with bringing in just Rs 10 crore. Last time when mutual fund companies were in problem, the Reserve Bank of India had to open a special borrowing window for them. What is the protection for investors’ money there?

Have you approached the finance ministry to step in and make peace?

We have not approached the ministry. It is up to the two regulators to sort it out among themselves. Neither do I want to embarrass the government by asking them to interfere. We have tried to resolve it in the best way we thought we could.

Where do you think the buck will stop?

That is something you should ask Sebi and not me.

Will you discuss it with Sebi and try to resolve the issue?

We had already discussed it with them earlier before they issued the order. We had invited them over to Hyderabad last month and discussed it. There is no point in discussing it now. What will they do with the order now, withdraw it? It is meaningless discussing it now. Sebi’s order has been very hasty.