There can hardly be anyone who has any interest in investing who could any longer be unaware of the SEBI-ULIP-IRDA drama that's going on. This is not a new matter, it has been going on for a few months now. In the media, the generally prevalent narrative is that this is a struggle between two regulators about who has jurisdiction over a particular financial product. This question is of the utmost importance, and its outcome will have a great impact on how Indians invest in the future. However, for the careful and knowledgeable investor, who'd like to be careful with his money, the current controversy is largely meaningless.
I know that sounds like a strange thing to say, but the reason I'm saying this is that the question of whether the ULIPs currently sold by India's insurance companies are an investment-worthy asset class is crystal clear, and has been so for some time now. India's investing public is made up of a large mass of financially illiterate people who obligingly buy whatever is being sold and advertised most intensively. This is the ULIP market, and they have been a rich source of funds for insurance companies and their agents. If the regulatory system is not overhauled, these are the people who will continue to gift away their hard-earned money to the insurance industry. There's nothing anyone will be able to do about it. There is now a deeply-entrenched and rich eco-system of high upfront commissions and a vision of immense future profits that finance insurance campaigns of a ferocious intensity that have never been seen in India before. Most people have no hope of being able to resist this.
However, there is also a small proportion of savers and investors who understand enough to know that the only thing worthy of being called insurance is term insurance. Beyond that, there are a large number of investment options which are suitable for different people in different proportions. No one needs this bizarre ULIP combination of a high-cost mutual fund with front-loaded commissions into which a tiny amount of insurance has been added in order to avoid coping with a pro-customer regulator.
The current controversy is a turning point in the regulation of India's consumer finance products. Either the government will decide that the savers' financial being is the most important thing, or, the rich and powerful insurance industry will settle down with its hands deep in the pockets of ordinary Indians who are completely dependent on the government to protect them. As far as I can see, the hardest part seems to be admitting the mistakes of the past, of recognising how deeply misguided insurance regulation has been in India. I'm not really sure if the powers that be have the courage to do that.
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