Why we oppose the proposed amendments in LIC act

WHY DO WE OPPOSE THE PROPOSED AMENDMENTS IN LIC ACT, 1956?

The four organizations in LIC affiliated to BMS, the largest Central Trade union in the country viz; National Organization of Insurance Officers (NOINO); National Organization of Insurance Workers (NOIW); National Organization of Insurance Pensioners (NOIP) & Bharatiya Life Insurance Agents’ Sangh (BLIAS) have always been in the forefront in raising the issues concerning the LIC employees/officers/agents & following it up till its logical end. We now, request your attention to a different subject. This is a matter of life & death for the Nationalised Insurance Industry & the gravity & seriousness of the subject should not be ignored by all concerned.

You will recall that NOIW & NOINO had observed a day-long strike on 23^rd December 2008 to oppose the hike in FDI in Insurance from 26% to 49%. We all are also aware of the diligent efforts & valiant attempts by the trade unions in LIC & GIC to thwart privatization of Insurance Industry. The efforts were successful to the extent that the government could not introduce the hike the FDI to the extent of 49% as was intended. However, the danger has again started lurking.  We are explaining below our stand on why we are opposing the impending amendments to the Insurance Act, 1956.

PROPOSED AMENDMENT NO. 1

TO RAISE THE MINIMUM CAPITAL OF LIC FROM 5 CRORES TO 100 CRORES WHICH CAN BE FURTHER ENHANCED BY NOTIFICATION

Ostensibly, the logic is that the IRDA regulations stipulate that minimum capital of Insurance companies should be 100 crores to provide for solvency margin in line with the business size.

However,

1) All LIC policies already have sovereign guarantee of the Government.

2) LIC has already earmarked over 30000 crores as solvency margin.

3) The provision in the proposed amendment that the ‘minimum capital can be further enhanced by notification’ (which means without debate or discussions in Parliament or otherwise) has dangerous overtones & we apprehend a move to corporatize the Corporation in future.

PROPOSED AMENDMENT NO. 2

To vest powers of opening of branch offices/divisional offices with IRDA instead of the prevalent regulation of vesting this power with the respective Zonal Manager

Our feeling in this matter is that this means centralization of powers with the IRDA. When the need of the hour is to spread the message of Insurance widely, the decision of opening of branch offices & divisional offices are to be taken at ground level that too quickly & not by vesting these powers with IRDA & get stuck in red-tapism. LIC has been discharging its duty all these years with admirable efficiency & this amendment will effectively snatch its freedom of expansion. Hence we oppose this amendment vehemently.

PROPOSED AMENDMENT NO. 3 

To distribute 90% of the valuation surplus to the policyholders instead of the existing 95% of the valuation surplus. 5% of the valuation surplus to be credited to a separate account which the Central Government may utilize for any purpose or in any manner that it thinks fit. The remaining 5% will be paid as dividend to the Government.

The following points should be noted:-

1. The policyholder will get lesser bonus & hence he will be alienated from LIC to that extent as till now he was guaranteed 95% of the valuation surplus. This will affect LIC’s credibility & image which will ultimately affect the business.
2. If the purpose of creating a separate account is to create a statutory reserve fund for the policyholders LIC has already earmarked over 30000 crores as solvency margin which is sufficient to cover any contingency.
3. The clause that the Government may utilize the fund for any purpose & in any manner is fraught with danger.

  Hence we oppose this proposed amendment.

PROPOSED AMENDMENT NO. 4

Instead of full sovereign guarantee by the Central Government to all LIC policies, the words ‘to the extent, the Central Government, may determine from time to time’ will be substituted

The following points should be noted:-

1. The proposed amendment clearly speaks of the intention of the Government to reduce the extent of full guarantee. While this itself is objectionable, we also apprehend that in the future, the guarantee will be fully removed.
2. What are the possible consequences of the dilution/removal of the full sovereign guarantee?
1. Though it is a fact that the Sovereign guarantee by the Government never had to be invoked due to the strong fundamentals of LIC, the dilution/removal will definitely shake the confidence of the policy holders.
2. LIC has played a crucial role in nation-building with its huge investment in public Infrastructure. It has also been a very important stabilizing factor in the volatile market. With the huge fund it possesses, its role will be more crucial in the days to come. Barring a few exceptions, the private insurance companies have failed. Hence, the need of the hour is to give some more incentives to LIC, not to cut its limbs by diluting & removing the sovereign guarantee on LIC policies.

PROPOSED AMENDMENT NO. 5

To divest the Central Government of its powers of framing the rules regarding the terms & conditions of  service of the agents. Similarly to divest LIC of its powers of framing the rules regarding the method of recruitment & conditions of services of the agents

             Apparently there seems to be no logic in this proposed amendment except for depriving the agents of the statutory protection & redressal mechanism. It is also not clear who will then frame the rules regarding the agents. It can be safely assumed that the Government wants to pass this role to IRDA. A very important point here is that a Welfare State (Central Government) cannot deny its role of providing employment to the unemployed in our country. LIC has about 14 lakh agents in its fold. The terms & conditions of the services & method of recruitment should therefore vest in the Central Government & LIC only. 

PROPOSED AMENDMENT NO. 6

To hike the FDI in Insurance Industry from 26% to 49%

           The following points should be noted:-

1. On one hand, the government is proposing to increase the equity capital of LIC from 5 crores to 100 crores, & on the other hand the foreign capital would be increased in private sector to 49%. We apprehend that in future the Government will increase its share of Paid-up equity capital to an unlimited extent & then sell its share to the public including foreign companies, there-by converting LIC into a private limited company. This will lead to grave economic crisis.
2. Is it not a fact that the majority of the private Life Insurance companies are in the red & the hike in FDI is to give them a fresh lease of life?

      We urge one & all to ponder seriously over the above points. We should not only think & act to save LIC but also to save the Nation. We once again urge you to join & support the Maha-Dharna organized by NOINO/NOIW/NOIP/BLIAS on 1^st August 2011 at Delhi to protest the amendments to the Insurance Act.