IRDAI bars insurers from advertising unit-linked policies as investment products, issues advertising rules

The Insurance Regulatory and Development Authority of India (IRDAI) now bars insurance companies (insurers) from promoting their unit-linked insurance policies (ULIP) as pure investment products.

ULIPs comprise two components: a part of the premium goes into the life insurance plan, while the remaining part is invested similarly to equities or bonds.

During 2023-24, life insurers introduced new fund options–particularly in the small-cap and mid-cap funds segment–as part of their existing ULIPs. Insurers had been advertising new ULIP schemes as new fund offers (NFOs) to policyholders and retail investors. However, the term ‘insurance’ was missing in various advertisements, leaving scope for a consumer to misconstrue these products as mutual fund schemes.

Based on reports of ULIP mis-selling by insurers earlier in 2024, the insurance regulator’s latest directive explicitly mentions that ULIPs cannot be marketed as ‘investment products’. Markets regulator the Securities and Exchange Board of India (SEBI) also raised concern over insurers misrepresenting ULIPs as investment offerings.

The IRDAI Insurance Advertisements and Disclosure Regulations, 2021, does identify insurance advertisements that fail to "clearly identify the product as insurance in any insurance advertisement" as unfair or misleading. However, the new master circular introduces a more detailed list of dos and don'ts that insurers must adhere to.

The insurance regulator has called for insurers to refrain from promoting unit-linked or index-linked plans as investment products. Insurers will be required to specifically mention that market-linked insurance plans are different from traditional endowment policies and carry risks. Similarly, participating (with bonus) endowment policies will have to mention upfront that the bonuses projected in benefit illustrations are not guaranteed.

Also, insurers must reduce emphasising on the past performance of ULIP funds in promotional campaigns. The insurance regulator has laid down a template for reporting the returns track record:

• Compounding annual returns shall adopt standardised computations, for the past five calendar years, stated as a percentage rounded to the nearest 0.1%
• If the data of the last five calendar years is unavailable, then as many years as possible must be depicted
• In the same font and size, an insurer is required to mention that past performance is not necessarily indicative of future performance
• Corresponding benchmark index performance, if any, is required to be included