True or False:

Regulators are appointed to:

a) protect the customers

b) protect the manufacturers

c) regulate and develop the industry

d) to speak the language of the strongest manufacturer and help the well established ones.

Zero marks to people who chose a, b or c.

Let us take the Insurance Regulator’s role.


In the very beginning (circa 2001 I think) the private sector companies came with ‘Riders’. One such company was Hdfc Standard Life insurance. They had (I presume they must be still having) a rider called the ‘Critical Illness’ rider. This rider premium would be more than the mortality premium (obvious to students of probability) – and in many cases would be far higher than the mortality premium. So it was technically possible that you buy a TERM INSURANCE plan for Rs. 50 lakhs and a critical insurance cover for Rs. 50 lakhs. Made a lot of sense, …for the customer.

However the big daddy did not have ‘Riders’…so IRDA brought a rule saying ‘The Rider premium should not be MORE than the Main premium’.

Losers: Customer of course, and the private sector insurance companies who were hoping to sell Riders.


Sorry dates are a little confusing, so will skip it. Sometime in the year 2004 I bought a Unit Linked Endowment Plan with a nice sum assured and a facility to top up. As an example say I could buy a ULIP with a premium of Rs. 100,000, sum assured of Rs. 20,00,000 (they subsequently allowed it to be Rs. 40L). Here I could top up (which meant low costs for me) to the extent of Rs. 3 lakhs (20% of the sum assured minus the regular premium i.e. 4 lakhs MINUS 1 lakh). On this top up I was charged 1% entry load (it used to be 2% in MF) and the asset management charges were 0.8%p.a.

Big daddy saw red, big daddy did not have enough Unit linked sales – whatever.

Regulation: TOP UP CAN BE ONLY 25% of the PREMIUM PAID. This meant in a new plan with the same figures as mentioned above, I could TOP UP only Rs. 25k, NOT 300K!

Loser: Customer of course, but just the customer.

The explanation of why these regulations were brought in were of course so profound (sounding) that the pink press carried it like a benefit for the customer. Only thing is that some of the readers were tickled pink…and some of the readers of this post are going to turn crimson red.


This takes the cake, I think. The life insurance industry has been grappling with a huge problem. Mis selling by the sales force (I think it is product and commission structure problem, I am in a minority of one). The cost of mis-selling was borne by the customer. So a person who paid Rs. 100,000 as premium was told..’Ha your policy is now worth R. 9000, if you want to get back what you have paid, please pay another Rs. 100,000 for the second year and third year’ and the poor guy obliged.

Then thanks to SEBI’s Bhave the cost of mis-selling was shifted to the manufacturer. The surrender charges were capped at Rs. 6000. Ridiculous! said the industry…if a client paid Rs. 10 L as premium why should the surrender charges be so low they screamed, hollered, (actually they only told, I am showing off my English). Hey presto the regulator made a change. Very discreetly they said ‘Premium will have to be paid for the full term’. Amazing cruel cut. The unkindest cut of them all, S’pere would have said!

Let us look at the policy I bought. I can pay premium as long as I want (it was compulsory for only 3 years, now such a policy is not available), I pay asset management charges of 0.8% p.a. (now the cheapest is 2% p.a.), I could top up the premium (now I cannot top up any sensible amount).

Hey Bhagwan…kuch to rehem kar. Please mujhe regulator se bachao!

the third – the unkindest cut was told to me by Debashis of MoneyLife Foundation…so full credit to his team (Raj) who found this needle nicely stuck in the banana! Ayn Rand, we need you!

Over to you Debashis Basu and Sucheta Dalal!

Ps: I am not an Ayn Rand fan. In fact an analysis of the other regulatory actions – like DOT delaying the number portability etc. will be worth doing!

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  1. Agree with you Subra that IRDA has not been a good regulator. Moreover, as Raj from Moneylife has pointed in his article “The New Old Ulips”, the new ulips could be more dangerous than the old ones.

    However, I did not get your third point about “Premium needs to be paid for full term”. Could you throw some more light on this?


  2. one doesnt need to be an ayn rand fan to understand that regulators are just leaps of faith.they are always manipulated/controlled/work for the entrenched participants.ditto for all licensure like CA/CFA/MBBS etc.none of these mandatory licenses and certifications help the consumer.they do benefit the certificate holders by creating entry barriers.

  3. Maybe you provide arguments “pink press” carried to make these changes sound like benefit for customers. That will help give other side a voice too and make us see problem with regulators even better.

  4. Pick any random regulatory body in India – select any of their regulatory actions, analyze their intended effects & research their enormous unintended (mostly detrimental) consequences. Collect real life evidence & document. You got yourself a neat thesis in economics worth a Ph.D

  5. India is a terrific laboratory & source of study for social & economical experiments gone horribly wrong in the modern age. Indians are all after all rats in a lab. Not a nice feeling I know 🙁

  6. I also don’t understand what ““Premium needs to be paid for full term” means in the third point. Can you provide more details on this.

  7. Pingback: Financial Buzz - ULIPs: No More “Cover Continuance”?
  8. cannot understand why there is an expectation that the regulator will regulate. let alone fairly. regulator is spelt RETIREMENT POSTING FOR BUREAUCRATS. why should anyone change what worked so well for him all his life? Its just another babu passing time at your expense (and mine some times). to expect them to do the right thing for the industry is senseless. Primary requirement is not to understand the business(dont even dream about the customer). If they did they would be IN the business making money. Or may be they are .. from the other side..

  9. Dr Mohammed Ali Khan

    Ïm not an Ayn Rand fan ” Why ?
    She says exactly the same points like you are also saying.. Regulations help only the entrenched businesses against competition from new & innovative companies..
    So, what’s wrong in admiring her predictions?

  10. Last word!

    Sebi- Better if not beat

    IRDA—here to benifit insurance cos & strip Layman!
    were they sleeping wen ULIPS were ,mis-sold!
    all bullshit

    IRDA sud be ashamed! Too little –too late!
    Pvt insurance cos repeating what blunders they did in West-now looting Indian Poor Man!!

    God! wen will this miss-selling stop!!!!!!
    ULIPS r worst products ever! Mr Subra ttoping up was gud Idea, now valid now, anyways still Mutual funda score heavily over ULIPS/Endowment?money back & nav gaurentee plans!

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