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New marketing code to be issued for insurance, MF

The spat among the insurers and mutual fund houses is set to end with the regulators expected to come out with detailed set of guidelines for MF houses wishing to sell schemes bundled with insurance cover. The guidelines could ask for enhanced disclosures from fund houses while selling these products, that include the source of the insurance provided, with all the future advertisements adhering to the code.

“We are waiting for Sebi or Irda to give us the Irda guidelines that govern the selling of insurance products,” says AP Kurien, head of Amfi, a trade body of all the mutual fund houses in the country. “Once we receive it, we have no issues in following the guidelines to be followed for marketing of such products,” he said.

Moreover the heads of Irda and Sebi are expected to meet over the next few weeks to further consider the issues that trade bodies in the MF and insurance sector have raised. Life insurers complain that while insurance companies have to compulsorily sell a fraction of their policies in rural areas, fund houses concentrate only on metros for their customers. This distorts the level playing field, they claim.

The dispute over group covers for mutual fund is the second phase of the turf war between life companies and mutual funds. In the first phase, mutual funds were complaining about the insurers stepping into mutual fund territory with ULIPs. Mutual funds decided to get back by offering systematic investment plans (SIPs) with life cover, structuring it on the lines of ULIPs. A handful of companies such as Kotak Mahindra AMC, Birla Sun Life AMC, and Reliance AMC had taken a lead in this direction.

Selling such products was banned by Life Insurance Council, Amfi’s counterpart in the insurance industry. But after the intervention of finance ministry, this ban was lifted and fund houses would now get to sell insurance laced products too. But this compromise was reached after it was decided that the marketing of such products was done as per new rules and an established code to be announced by Sebi soon.

Firstly the code could involve telling the buyer the source of the insurance company that is providing the cover and a disclosure that it is not structured by the fund house. Mr Kurien says that fund houses have always pointed that the cover provided is just an add-on, but they would be willing to accept additional disclosures.

The code could also involve more details about the advertisements made by fund houses. Currently all the ads made for selling funds adhere to a Sebi code, and is essentially a self-regulatory process. But the code could be modified to include a few clauses on insurance cover loaded MF products.

Source : Economic Times (12-10-08)