M. S. R. A. Srihari,
Former joint secretary,
Insurance Corporation
Employees Union (AIIEA),
Warangal division. E-mail: msra.srihari@licindia.com
The article by V.K. Shunglu in The Hindu, “The risk business needs better cover”
(Op-Ed, February 14, 2013) is one-sided and conspicuously understates
certain key aspects of insurance reforms undertaken in the country a
decade ago. It misses the basic promise on which an insurance business
is run — that of “trust” and the long-term “promises to be upheld.”
This industry should not be seen merely in economic terms. The
settlement of the death claim of Hemant Karkare, chief of the Mumbai
Anti-Terrorist Squad, who was killed in Mumbai’s 26/11, presents a
clear-cut example of Trust.
Mumbai’s Dadar branch of the Life Insurance Corporation (LIC) had
settled the death claim amount of Rs.25 lakh within five days whereas a
private company (name withheld), where Karkare had coverage for a
similar amount, had rejected the claim — and, after a lapse of six
months — by stating that the deceased had willfully risked his life, even
after knowing that his life was in danger. That’s why I said the
insurance business should not be seen in purely economic terms.
The tag of public sector should not be the reason for spewing venom.
There are certain “Crown jewels such as LIC”; it settles 98.6 per cent
of claims, the only insurance company in the world to do so. It is true,
as Mr. Shunglu says, that the insurance business has become a key
player in underpinning the long-term foundations of India’s capital
markets and financial system. But for satiating the needs of India’s
capital markets, these private insurance companies have done little good
for gullible policyholders and their hard-earned monies.
This is an industry in which even with a small amount of investment i.e.
Rs.100 crore, thousands and lakhs of crores of public money can be
garnered. It is firmly believed that the Foreign direct investment (FDI)
hike will allow foreign capital with small investments to gain greater
access and control over large domestic savings. The annual report
(2011-2012) of the Insurance Regulatory and Development Authority (IRDA)
points out that FDI brought in by private life insurance companies up
to March 31, 2012, was a meagre Rs.6,324.27 crore, which was to meet
share capital requirements prescribed by the regulator. Not a single pie
was invested in the infrastructure sector. It is LIC which is a
saviour, and the government of the day is utilising it as a captive
investor, just as it has done in the case of petroleum major ONGC.
In our country, insurance companies are mopping up people’s savings.
During 2011-12, domestic savings were 32 per cent of GDP. Financial
experts say that domestic savings, and not FDI, are crucial for any
country’s economic development. In India, LIC has provided Rs.7,04,151
crore to the 11th Five-Year Plan (2007-2012) while the four general
insurance companies and GIC of India have contributed about Rs. one lakh
crore. Where will the government get these huge investments from if it
tries to weaken the public sector insurance companies?
The World Economic Forum Financial Development Report 2012 tells the
success story of LIC. It shows that given the low level of income and
low disposable income of most Indians, insurance penetration in India is
much greater than in countries with a per capita income that is 10
times higher. It is remarkable that with a per capita GDP of $1,388.80,
India has achieved a life insurance penetration of 3.61 per cent as
against 3.56 per cent of the United States with a per capita GDP of
$4,8386.77. It is also a matter of pride that the report places India at
the top of global rankings in terms of Life Insurance Density (measured
as a ratio of direct premium to per capita GDP of 2011).
The LIC, the four general insurance companies in the public sector and
GIC of India are doing an excellent job despite competition from private
insurance companies. In 2011-12, LIC earned a premium of Rs.81,514.49
crore registering a market share of 71.36 per cent in premium income. It
sold 3.57 crore new policies, to take an 80.9 per cent market share in
the number of policies. Similarly, the four insurance companies have
earned a premium income of Rs.30,532 crore and registered 58 per cent of
market share.
The financial crisis in the U.S. and Europe has seriously eroded
confidence in the banking and insurance sectors. At the same time, our
domestic private insurance partners hardly need capital to be infused by
their foreign counterparts, as put forth by the votaries of FDI
increase.
Partners of private insurance companies in India like the Tatas and
Reliance are on an acquisition spree, spending billions of dollars, both
on the domestic and foreign fronts during the last five years. The
others, like the State Bank of India and other public sector banks have
capital reserves of their own. Some foreign partners have exited not due
to a delay in the increase of FDI cap but because they are in search of
greener pastures.
The author has also put forth another interesting argument — that
shareholders and company boards be left free to determine whether
additional investment should be through FDI or FII or by other means.
The world saw the bubble burst in 2008 due to such flawed and mistaken
judgements by company boards and shareholders, when they invested the
earnings/savings of innocent policyholders into Collateralised debt
obligations, or CDOs. India was saved from such a situation because of
the domination of the public sector in the banking and insurance
sectors. Even the Prime Minister and the Finance Minister have shared
this view.
Looking back, it is time to learn lessons from the global collapses of
banks, insurance companies and other financial institutions like Lehman
Brothers, etc. Foreign investment in insurance sector does not bring any good with
it, especially in fragile sectors like insurance. This sector is the
pillar of any upcoming and growing economy.
courtesy : The Hindu / 26.02.2013
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