Saturday, August 29, 2009


Recently I read one piece of article by Mr. M. Kunhikrishnan, Vice President, All India Insurance Employees' Association which has immense value of public interest. I reproduce the same for you to read.


After the 14th Lok Sabha elections in the year 2004, UPA – I Government assumed office with the support of strong left contingent of 61 MPs. To ensure Left’s support UPA had to agree to and approve of a Common Minimum Programme. In the CMP, it was enunciated that Public Sector Insurance Companies both Life and General would be protected and further strengthened as Public Sector institutions. Therefore, the UPA Government could not go ahead with their reforms agenda as they wished. But, when the left withdrew their support, consequent on signing nuclear pact abjectly surrendering country’s sovereignty, UPA Government took it as an opportunity to implement all reforms in financial sector with an indecent haste. As a part of their move, 2 Bills, viz, LIC (Amendment) Bill, 2008 and Insurance (Amendment) Bill, 2008 were introduced in Lok Sabha and Rajya Sabha respectively on 22.12.2008.

 The bill introduced in Rajya Sabha was to enact a comprehensive legislation amending Insurance Act, 1938, General Insurance Business Nationalisation Act 1972 and IRDA Act 1999. Maximum cap prescribed by IRDA Act for Foreign Direct Investment (FDI) is 26%. The proposed amendment seeks to hike this cap to 49% to enable foreign partners of the private insurance companies (Joint Ventures) to enhance their capital participation. It also provides for Public Sector General Insurance Companies (National, United India, New India and Oriental) to divest their equity if they wish to enhance capital base in future. The real intent is to disinvest equity of 4 Public Sector General Insurance Companies.

The Government wants to bring Life Insurance Corporation of India (L I C), the lone Public Sector Life Insurance Company in the country too under the ambit of Insurance (Amendment) Bill. The Government introduced L I C (Amendment) Bill 2009 in the Lok Sabha on 31.07.2009 in lieu of the Bill 2008 which lapsed following dissolution of 14th Lok Sabha with this objective. When we analyze the objectives of the bill re-introduced the privatization agenda of the Government would come to fore. The salient features can be summarized briefly as given below:

  • • Provide for raising of minimum capital of the Life Insurance Corporation of India from 5 crores of rupees to 100 crores of rupees which can further be enhanced to such amount as the Central Government may, by notification, determine.
    • Provide sovereign guarantee to the policies of the L I C of India to the extent to be determined by order, by the Central Government from time to time.
    • Allocate ninety percent surplus for the Life Insurance policy holders instead of ninety five percent as envisaged in L I C Act, 1956.
    • Empower Life Insurance Corporation to make regulations in respect of terms and conditions of the Agents.

Let us examine these in detail.

The proposed amendments are to conform L I C Act to the regulations of IRDA Act, 1999, the Government argues innocently. They go on to say that there are 21 life insurance companies functioning in the country in addition to L I C of India and that all the private companies have a minimum capital of 100 crores of rupees each. Hence the proposal to increase the capital base of L I C, the Government argues.

The IRDA Act stipulates that a life insurance company comes into existence after enactment of the Act must have a minimum capital of 100 crores of rupees. In other words, a life insurance company existing and functioning prior to the enactment of IRDA Act need not comply with this provision. Further, Life Insurance Corporation of India started functioning from 01.09.1956 as per the provisions of L I C Act, 1956, an Act adopted by the Parliament of the country, with a capital of 5 crores of rupees. Therefore, it is not at all necessary to enhance the capital as per provision of IRDA Act, 1999. Moreover, the then Prime Minister Pandit Jawaharlal Nehru and the then Finance Minister Sri. C.D. Deshmukh, the architects of public sector in India had a vision that the L I C may grow to such an extent where Government’s capital can be dispensed with at a later stage. They wanted Life Insurance Corporation to function as an autonomous body corporate with sufficient capital of its own. That is why they included a provision in L I C Act, 1956 to reduce the capital of L I C by the Government on the recommendation of the Corporation.

The question is whether further infusion of capital to the tune of 95 crores of rupees is necessary for L I C of India. As per provisional accounts as at 31.03.2009, the Life Insurance Corporation of India have assets worth 9 lakh crores of rupees. It has a liability of 7,75,000 crores of rupees. What way L I C would be benefited with an additional capital of 95 crores of rupees when it has a net asset worth 1,25,000 crores of rupees?

Even a layman can understand, the real objective of the Government is to privatize L I C of India. Equity worth 5 crores of rupees is not sufficient for disinvestment. In the year 1994, the committee headed by R.N. Malhotra recommended to Government of India to enhance the equity base of L I C to 100 crores of rupees and also to disinvest stocks valuing 50 crores of rupees. Due to the stiff resistance of Trade Unions, Political parties, especially the Left, the Malhotra Committee recommendations had to be kept in cold storage. The Government now wants to go ahead with disinvestment of LIC’s shares after enactment of Insurance (Amendment) Bill which has been introduced in Rajya Sabha on 22.12.2008.

Why the Government wants to withdraw the ‘sovereign guarantee’ enjoyed by Life Insurance Policies of LIC? They want to create a ‘level playing ground’ for the private players. Orchestrated demand of the private companies and the IRDA chairmen from time to time was withdrawal of sovereign guarantee of L I C policies. The Government now succumbs to their pressure.

L I C was formed in the year 1956 nationalising 245 private life insurance companies, both Indian and foreign. When the assets and liabilities of these companies were evaluated, it was found that the net liability exceed assets by 75lakhs of rupees. The Government then decided to provide sovereign guarantee to LIC policies to instill confidence to the investors. But, L I C never invoked this provision to meet its liability. LIC settled all the claims including large scale claims preferred following national calamities like Gujarat earthquake, tsunami etc. Despite the sterling performance of LIC, the Government intends to withdraw ‘sovereign guaranty’ to destroy the edge L I C has in the market. It is a fact that L I C garnered nearly 62% of market share of life insurance business of the country withstanding the stiff competition of the private players. Withdrawal of ‘sovereign guarantee’ is to mislead the clientele who reposed confidence in the public sector behemoth.

In addition to this, the amendment proposes to change the existing formula of dividing surplus of the Corporation derived after annual valuation. As of now, the policy holders are entitled to 95% of divisible surplus which are distributed to them as Bonuses. It is sought to be reduced by 5% making their eligibility to 90%. Naturally, the corporation would be constrained to reduce the rate of bonus payable to the policy holders. L I C is giving Bonus to the policy holders at highest rate at present. No private company can compete with L I C on this count. Barring one or two, all other private companies have incurred losses even after nine years of existence. They declare Bonus from share holder’s fund and not from the surplus derived after valuation of business performance. They want L I C’s capability to pay higher bonus to be pruned. Here also, the Government acts according to the wish of private players.

The move to delegate powers to make regulations in respect of terms and conditions of Agents to the Life Insurance Corporation may appear innocuous and routine. As per the present practice, change in the Agents Regulation, 1972 has to be vetted by Government. When these powers are delegated to the Corporation, it would enable the Corporation to frame or amend Agent’s rules according to the whims of bureaucrats. Recently, an amendment to Agents Regulation, 1972 was made effective from 09.07.2009 according to which each agent has to introduce 12 lives in a year and bring in a first year premium income of a minimum one lakh of rupees to keep the Agency in force. More than 50% of the existing agency force cannot fulfill this condition which may lead to their termination. Agents are apprehensive of the Corporation venturing for more stringent conditionalities. Unlike Agents working for private life insurance companies, L I C Agents are privileged to receive commission for the entire term of the policy until its exit from the books of the corporation. The management is toying with an idea to limit the period of payment of commission. Agents are viewing these proposed amendments as a Damocles’ sword.

L I C Act, 1956 empowers L I C to establish as many Divisional Offices and Branch Offices in each zone as the Zonal Manager may think fit. The proposed amendment seeks to omit this provision from the Act. As a business organization L I C may have to increase visibility to enhance marketing activities especially in the background of competition from private players. L I C cannot open new offices in the light of the proposed amendment. This would stifle L I C from broadening their servicing as well as marketing activities. It may ultimately benefit the competitors and this is the real motive of the Government.

Defeat the sinister design of the Government.

The first phase of demolishing public sector Life Insurance Company was over with enacting IRDA Act, 1999 whereby insurance sector was opened up for private participation. Now, UPA – II Government which continues to pursue neo liberal policies, wants to embark upon second phase of their attack by enacting L I C (Amendment) Act and Insurance (Amendment) Act. The ill conceived move can be resisted only by the united will of the people. Widest public opinion has to be created. As a prelude to organizing the people enmasse, we have to unleash a campaign amongst the various constituents of LIC, to educate the Employees, Officers, Development Officers and Agents and to brief them properly of the consequences of the amendments if eventually enacted.

L I C today has 26 crores of policy holders. We must win their confidence. They must be taught that whatever be the hurdles created by the Government, L I C is capable of meeting all the liabilities to the satisfaction of the clientele. We must be the vanguard of the ensuing campaign and struggles. If L I C employees organized under the banner of AIIEA cannot do it, who else can do it?  

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