Friday, July 11, 2014

Why NOINO is opposing raise in FDI in Insurance

WHY DOES NOINO OPPOSE PROPOSED HIKE IN FDI IN INSURANCE FROM 26% TO 49%?


  1. Such a hike is nothing but a ruse to accommodate the Multinational Insurance companies who are bent upon filling their own coffers with little or no concern for the nation. A simple logic is that a person(in this case a foreign partner) contributing 49 out of 100 Rupees will henceforth take away 49 Rupees as profit instead of 26 Rupees earlier.
  2. The track record of the private players doesn’t enthuse any confidence. The cumulative losses of these private players have run into the tune of 18000 crores.
  3. While the ratio of premium income to the GDP increased from 2.15% in 2001 to 3.4% in 2011, it is interesting to note that a  mere 34.3% of such increase came from 22 private players, while 65.7% of the increase came from LIC. Has the introduction of FDI really helped?
  4. The private players are usually tom-tomming about their so-called efficiency. It is shocking to note that private players repudiate 10% of their death claims while LIC doesn’t repudiate even 1% of its death claims.
  5. Since the private players entered the fray, the canvass of the LIFE Insurance business has changed. Earlier, the maximum thrust was on non-unit-linked business. LIC was not allowed to invest even 10% of its funds in equities. After privatization, the rules were changed ostensibly to pamper the private players. About 80% of the business transacted by the private players was unit-linked. If a substantial part of the business is Unit-linked or even single premium, it cannot be termed as Insurance in the strictest terms. It is more of an Investment rather than Insurance. Thus, the objective of Insurance penetration is not achieved.
  6. Life Insurance has traditionally been a long term business. It has been converted into a short term one with this type of trend which has nothing but disastrous consequences.
  7. LIC has always been in the fore-front & acting as a stabilizing factor in a volatile market. It has been contributing tremendously in the infrastructure of the nation. E.g. in the FY 2011-2012, it invested 8.20 lakh crores in Government & social sector. Pumping in more & more FDI would mean trying to cover up the inefficiency of private players at the cost of LIC & at the cost of nation. It would be like “robbing Peter to pay Paul”!!
  8. It is pertinent to note that the Parliamentary Standing committee, headed by Shri Yashwant Sinha had rejected the proposed hike in FDI.
  9. The government opened the insurance sector in order to accelerate the rate of growth of premium income as well as insurance penetration in the country. But, there is only deceleration in premium growth and stagnancy in insurance penetration.
  10.  The private life insurance companies deployed 40000 crores as capital & acquired a total premium of only 80000 crores out of which 30000 crores was towards First Year Premium. In sharp contrast, LIC didn’t deploy any capital. In fact, it generated a solvency reserve of 60000 crores in the same period(from 2000-01 to 2013-14) from internal resources.

Dr S B Sharan
WP, NOINO

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