Insurance companies have been again told not to outsource any fund management-related service to asset management companies. The reminder comes after the regulator noticed that some insurers continue to avail of the services of AMCs despite its directive that fund management is a core function of insurers and should be conducted in-house by insurance companies, reports Economic Times.

The Insurance Regulatory and Development Authority (Irda) has recently told life insurance companies that apart from outsourcing computation of net asset value and receiving investment advice, insurance companies must conduct all tasks related to fund management in-house.

The issue now centres around the investment of the money contributed by policy-holders towards unit-linked insurance plans (Ulips) which involve investing in stocks. Many insurance companies have taken recourse to delegating the fund management to asset management companies promoted either by group companies or to professional fund managers. This is reckoned to be a conflict of interest.

Most life insurers have an asset management company promoted by common shareholders. However, delegation of fund management activities to another entity is seen to pose additional risks to the funds of policyholders in case the fund manager encounters financial problems. Irda is of the view that the investment committee of insurance companies would have to shoulder the responsibility of handling the money contributed by policy holders.

The popularity of Ulips, which mimic mutual funds, has led to an increase in the demand for talent in fund management in the insurance industry. In case of traditional products, the requirement of fund management skill is lower since the investments are mandated with over half of the funds being invested in government securities. In Ulips, investors choose the assets, with most of them opting to see their savings invested in equity.

Insurance companies say that managing equity funds is expensive because of high salaries and the large investments that are required in research. Insurers say that in the short run, an in-house fund management team would put pressure on resources but over the years the economies of scale would kick in.

According to sources, over a hundred new Ulips are expected to be launched from July. The new schemes are aimed at being replacement schemes for products that do not comply with Irda's regulation on Ulips. The schemes are expected to be launched around the same time as Irda has said that it would not vet the products but would go accept a self-certification from insurance companies.

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