PNB MetLife India Insurance Co. is currently selling a unit linked insurance plan under the label of small-cap fund, potentially opening the doors for mis-selling of the insurance product.
This is because the ULIPs, by definition, are insurance products that have a part of the premium that is invested in the equity market. The other part determines the amount of life cover — the amount that a policy holder's nominees receive in the event of their death.
The label 'small-cap fund' is used by mutual funds to describe schemes that invest in the equity market. The mutual fund industry and, by extension, these schemes are governed by regulations designed by the Securities and Exchange Board of India. These regulations require mutual funds to clearly disclose the level of risk involved in these investments. The risk ascribed to small cap funds is 'very high' — the highest level of risk.
In the case of the PNB MetLife, the advertisement says: "In this policy, the investment risk in (the) investment portfolio is borne by the policyholder." No additional qualifications are made about the risk involved to the policyholder.
The ULIPs have a lock-in period of five years. Partial or complete withdrawals are usually permitted only after this period is over. No such lock-in period exists for equity mutual fund schemes, barring equity linked savings schemes, which are tax-saving instruments.
Regulatory Action
SEBI and the Insurance Regulatory and Development Authority of India are apprised of the situation and there is regulatory convergence and understanding between the two, according to a person familiar with the matter.
The insurance regulator is expected to take action in this case to prevent potential mis-selling, the person told NDTV Profit on the condition of anonymity as the information is not public. A response from both the regulators is awaited.
Company Response
The company, in response to an emailed query from NDTV Profit, said, "We firmly believe that the advertisement does not mislead or misrepresent the product in any way. PNB MetLife is committed to providing customers with transparent and accurate information about its products and services. We encourage potential policyholders to carefully consider their objectives and risk tolerance before making any decisions."
It also clarified that the 'PNB MetLife Small Cap Fund' "is not a ULIP product, but a ULIP fund...", adding that it followed due regulatory processes in the launch of the product.
However, the small-cap fund is only offered in combination with the company's ULIP plan.
The company also clarified that its "Sales Literature and Benefit Illustration issued to prospective policyholders clearly mentions this fund as “very high risk," adding that it has "internally advised our distributors of the very high-risk nature of funds and the need to remain invested for the long term to see material gains."
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