September 01, 2019

Policyholders’ Interests in Jeopardy as Govt Mulls Listing of LIC

P Satish

THE government’s reported move to list Life Insurance Corporation (LIC) in stock markets and raise foreign direct investment (FDI) limits in the insurance industry is an ominous sign for the public sector undertaking (PSU). Such a decision will endanger the interest of policyholders and affect the development of our country. Desperate attempts have been made by the international finance capital to emasculate the Indian insurance industry since 1980 and then US Trade Representative Karlas Hills had virtually threatened the government in 1989 with Super 301 trade sanctions, if the insurance sector was not thrown open to multi-national companies (MNCs). America’s arrogance was in full flow when she stated, “We will prise open Indian insurance industry.”

V P Singh, the then prime minister of India who was leading a coalition government with support of the Left and other parties, simply brushed aside the threats of USA. Singh emphatically announced that the insurance sector will not be privatised, nonetheless. It was a show of patriotism in real parlance, unlike the jingoistic fervour which is being witnessed in today’s time, in the guise of patriotism.

Ten years later, in 1999, the Insurance Regulatory and Development Authority (IRDA) Bill was passed for facilitating penetration of foreign and private insurance companies. In 2015, once again the FDI limits in the industry were increased to 49 per cent so as to roll out red carpet welcome to Barack Obama, the then US president. However, it is praiseworthy that despite the repeated attempts to scuttle the public sector LIC, it is happening in the reverse. Even after facing a bitter competition with 23 private players for more than 19 years, LIC is cruising with 70 per cent market share. Though the government had opened doors for the multinational companies, people of this country are fully rallying behind LIC. Insurance is nothing but selling of only a promise to the policyholder. That is the reason the architect of the constitution, B R Ambedkar, wanted insurance to be a State monopoly as it cannot be equated with other financial products. 

The big movement led by the All India Insurance Employees Association (AIIEA), supported by progressive forces, compelled the then Jawaharlal Nehru government to nationalise insurance industry in 1956, after amalgamating the discredited 256 private insurance companies. The swindle and wholesale fraud perpetrated on gullible policyholders by private companies had opened the eyes of the government then. LIC came into being in 1956 with just Rs 5 crore capital from the government of India and started its journey with the motto – People's money for people's welfare. It earned the massive goodwill and trust of crores of policyholders during its exhilarating journey so far. Today, LIC is being equated with trust, and many rightly call it – ‘Trust, thy name is LIC.’

The asset base of more than Rs 31 lakh crore, the highest for any public sector insurance company in Asia, and the customer base of 40 crore speak volumes about the extent of trust reposed on it by the people of this country. True to its motto, LIC had invested Rs 29,84,331 crore by March 31, 2019, for the benefit of the community at large. LIC had also invested Rs 21,40,106 crore by March 31, 2019, in government securities, housing, irrigation, roads, etc. On its investment of Rs 5 crore in 1956, LIC, till now, had paid more than Rs 20,000 crore towards dividend to the government. The LIC invested Rs 2.23 lakh crore in central and state government securities with an average annualised yield of 8.25 per cent. It is difficult to imagine this amount of contribution from a private firm. LIC settles 98.27 per cent of claims and always has been world number 1 in claim settlement. LIC has been paying thousands of crores of rupees towards income tax, GST, sales tax, etc. and has been contributing towards the development of our country.

The tall claims that FDI will bring in millions of dollars to propel the growth in insurance sector and help in infrastructure development were proved hollow. When the insurance sector was opened up, the total FDI which came into our country is a paltry Rs 13,068 crore (Rs 9,565 crore in life insurance and Rs 3,503 crore in general insurance). In the last four years, a mere Rs 1,000 crore additional FDI came in the insurance sector despite FDI limits being raised from 26 per cent to 49 per cent. On the other hand, LIC in the last two years has already given Rs 7.02 lakh crore to the government. Moreover, most FDI and (Foreign Institutional Investment) FIIs have come into our country only to indulge in speculative investments and to take over Indian companies through acquisitions and mergers. Finance minister announced in the recent budget that the government had decided to allow 100 per cent FDI in insurance intermediaries and is proposing to increase FDI to 74 per cent or more.

The total equity inflows in Indian services sector for 2018-19 is 9 billion US dollars (roughly Rs 63,000 crore), whereas LIC alone is providing around Rs 2.8 lakh crore to the government towards investments. Why a further FDI hike in insurance should be allowed, when it is only a trifle and is not useful for the productive development of our country, remains a pertinent question. After 18 years of opening up of the insurance sector, the insurance penetration (insurance premium as a percentage of Gross Domestic Product) levels in life sector has come down from 3.47 per cent to 2.76 per cent. The insurance penetration has declined because the private insurance companies are engaged in selling only unit-linked insurance plan (ULIP) and big-ticket policies and are concentrating mostly on urban clientele.

The country is now facing the worst employment crisis in its history. No new products have come except ULIPs which are not considered as conventional insurance products. Moreover, no new technology has come for the benefit of customer servicing. In fact, LIC, in a systematic manner upgraded its technology from time to time keeping in mind the customer expectations and requirements. Today it is recognized as the numero uno technology user in the country. As such, all the arguments put forth by the votaries of privatisation have fallen flat. LIC is acting as stabilizing force, whenever stock markets are in disarray. Time and again it is coming to the rescue of Indian financial markets by making huge investments. It had independent directors in 54 companies.

The pen pushers of international finance capital are propagating blatant lies that the listing of LIC will unlock shareholder for intrinsic capital value, bring transparency and accountability, improve good governance and help LIC to raise capital from markets for its growth and spread. This is a farce aimed at hoodwinking the people. There is no need for LIC to raise resources from the markets. LIC itself is making around Rs 3 lakh crore investments every year for the development of the country. The extent of LIC is sweeping, not just in India but also among other nations. It has thousands of offices across the country.

Many insurance giants in the world, including American International Group (AIG), faced turbulent situation after the 2008-09 economic crisis. AIG was virtually bailed out by the US government by pumping nearly five lakh crore USD whereas in India, LIC and other PSUs provided stability to the Indian economy.
Whenever natural calamities such as earthquakes, cyclones and tsunamis occur in the country, LIC fully settle all the claims by waiving the statutory requirements also. This gesture of LIC is unparalleled in the entire world. On the contrary, when terrorists targeted the World Trade Centre in USA in 2001, insurance companies of USA stoutly refused to settle the claims till they were supported by their federal government.

LIC is gearing up to invest Rs 1,50,000 crore in railways and recently committed to invest Rs 1,25,000 crore for the development of national highways. It is doubtful if any private or corporate insurance company will shell out such huge amounts in public investment in the country or across the globe. It is also unlikely that once LIC is listed in stock exchange, it will be allowed to continue to invest for the development of our country. It is an open secret that any listed company has to work in the interests of the shareholders only. The experiences of Videsh Sanchar Nigam Limited (VSNL), Bharat Aluminium Company (BALCO) and Centaur Hotel are pointers in this regard.

It is also our experience that during the process of listing, the real value of the institution will be downgraded so as to pamper to the insatiable greed of a few companies. Hence, it is preposterous to imagine that real value of LIC will unfold after its listing. There is also a sinister agenda to tinker with the LIC Act 1956, so as to convert LIC into a company before listing it in the stock market. There are apprehensions that this move may be followed by withdrawing state sovereign guarantee on LIC policies. (Entire policy monies and accrued bonuses of LIC are guaranteed by the government of India). The government gave sovereign guarantee to the LIC in order to protect the policy monies of customers as thousands of policyholders were duped by the then 245 private insurance companies. There is no occasion since 1956 for LIC to invoke this guarantee. 

It is crystal clear that the arguments to list LIC do not hold water. The government is in tearing hurry to implement its agenda to disinvest many PSUs, including LIC. LIC is a golden goose. It is lifeline for the Indian economy and providing economic sovereignty to our country. Any attempt to tinker with the LIC Act,1956, will seriously jeopardize the interests of 40 crore policyholders and the long-term interests of our country.

It is high time the government repeals the unjust imposition of GST on insurance policies and provide separate tax slab for insurance premiums for the development of the insurance industry. These would surely be called patriotic acts and will usher in ‘achhe din’ for our country.