THE 23rd Congress of CPI(M) warns that the move of Indian government to make an Initial Public Offering (IPO) of 5 per cent of the shares of the Life Insurance Corporation of India (LIC) is the beginning of a nefarious scheme to privatise LIC. Despite a quarter-century of deregulation of the insurance sector, LIC still accounts for 73 per cent of the policies and 61 per cent of the first-year premium in the country. It is one of the world’s most valued insurance brands. Its assets total Rs 38 lakh crores and it has more than one lakh employees and 14 lakh agents spread all over the country.

The LIC has a unique place in the world of insurance, created as it was through the nationalisation of private insurance companies in order to contribute to nation-building. A hybrid saving-cum-risk coverage product was innovated and proved to be popular with ordinary people; this led to a rapid expansion of business. Where the government of India invested only Rs 5 crores, the total life fund today amounts to Rs 34 lakh crores.

Five per cent of the net returns from the investment of the life fund is given to government as dividend and the rest distributed among policy holders as a bonus. The business model of LIC was that of a trust holding the life fund of policy holders and distributing the net profit among them. This is what makes LIC unique.

Now the government wants to change the character of the financial institution from a trust of policy holders to a profit-maximising company owned by shareholders. Two important changes have been introduced as part of regulatory requirements. Up to the present, the surplus from policies that are not linked to savings but had only risk coverage also went into a common life fund. The Insurance Regulatory and Development Authority of India (IRDA) has now said that non-savings linked policies would be a separate life fund whose returns will not go to policyholders but to shareholders. Further, it reduced the proportion of the net return to be distributed to policy-holders from 95 per cent to 90 per cent. As private shareholders increase, this ratio will certainly decline.

The sale of shares of LIC is, in effect, the sale of future income flows to policy-holders. They have not been consulted or informed of the implications of the IPO. The valuation of the LIC by consultants has been prepared not from the perspective of the policy holders but from the perspective of future investors. The listing of LIC has been approved by SEBI in record time, and without due diligence. The key objective of the regulator seems to be to assure investors that the value of their investments will be protected in full.

The privatisation of the LIC will undoubtedly have an adverse impact on the sovereign guarantee given to policy-holders. Given the general risk aversion of ordinary people, this guarantee was indeed an important factor behind the popular trust in LIC. In most parts of India, the poor have hardly any social security protection. LIC provides them with several social security insurance programmes at low premiums, attractive fixed deposit schemes, and special schemes for self-help groups. If cross-subsidies end, such schemes will be in jeopardy.

Unmindful of the social benefits of LIC, its assured annual dividend, and control over vast financial resources, the government of India is pushing the privatisation agenda forward. The only reason is the prospect of receipts from the sale of LIC shares. It expects to mobilise around Rs 60,000 crores from the IPO of 5 per cent of the shares. It is desperate to make the IPO a success, and has welcomed even foreign investors for the IPO. This amounts to selling the family silver for a pittance.

The offer of shares to policyholders and employees is an eyewash. The control of LIC is going to shift to a new anchor investor group whose identity is not yet clear.

The 23rd Congress of CPI(M) extends solidarity and support to ongoing efforts to mobilise policy-holders, employees, agents, and the general public into a nation-wide mass movement against the privatisation of LIC. It calls upon Party units and mass and class organisations to rally their members who are policyholders to join the movement to save LIC.