WHY DOES NOINO OPPOSE
PROPOSED HIKE IN FDI IN INSURANCE FROM 26% TO 49%?
- 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.
- 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.
- 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?
- 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.
- 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.
- 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.
- 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”!!
- It is pertinent to note that the
Parliamentary Standing committee, headed by Shri Yashwant Sinha had
rejected the proposed hike in FDI.
- 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.
- 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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