Govt Reneging On Promises About Insurance

THE All India Insurance Employees Association (AIIEA) recently approached the prime minister, asking him to take immediate and urgent steps to honour the assurances given on the floor of Lok Sabha. The reason for its concern is that, though the government had assured to take necessary measures to make the public sector insurance companies strong when the IRDA Act was passed in 1999, attempts are in fact being made to weaken these organisations.

After the IRDA Act was passed in 1999, the Insurance (Amendment) Act and the General Insurance Business Nationalisation (Amendment) Act were passed in 2002. These amendments brought brokers into the insurance sector. Also, the public sector general insurance companies were made separate entities, despite the reservations expressed in the house.

The unanimous recommendation of the Committee on Public Undertakings was also ignored; the committee had opined against the use of brokers as it would considerably push up the cost of procurement of business. The Life Insurance Corporation of India (LIC) and the general insurance companies in public sector too were against the use of brokers and the 15th Standing Committee (Finance) had recommended the tied agency system so that an agent is not permitted to operate in more than one company. Now brokers are being used as agents and are being given commission in the range of 10 per cent to 17.5 per cent whereas an agent is being paid commission in the range of 5 per cent for the same business.

The AIIEA also pointed out that after the entry of brokers they will be free to shift business from one company to another and may indulge in unethical practices by grabbing or poaching through lucrative offers the business procured by agents. Thus the business of agents would get diverted and routed through brokers even though they may not play any important role in procuring business. This will lead to an increase in the overall cost to the insurance companies and result in avoidable losses.

The AIIEA also brought to the prime minister’s notice that private insurance companies are not caring for third party motor insurance, which is mandatory and a non-profit portfolio. This type of insurance business continues to remain with the public sector general insurance companies.

Another point of complaint is that third party administrators are being used for servicing the mediclaim policies; this is tantamount to outsourcing of jobs and will result in job cuts. These third party administrators are ill equipped for the job, have a vested interest of their own and have indulged in frauds and scandals in other countries, about which write-ups have appeared in newspapers. There is an inherent danger of the Indian insurance industry facing similar fate.

The AIIEA also conveyed its distress over the statements made by some very important quarters on the health of the LIC; one such statement appeared in the Business Standard dated June 16, 2003. The report stated that the LIC could face problems in the next three years, and attempts have been made to equate it with the UTI where a major scam has already taken place. These comments in the press, if not quoted out of context, are uncalled for and without any justification, as the performance of the LIC is quite satisfactory. This institution has generated a premium income of Rs 55,000 crore in the year 2002-03, and its total assets base is of Rs 2,90,000 crore. It may be noted that the LIC meets all the claim payments, commissions and other management expenses out of the income it earns from its investments. The entire premium income is made available for investment. When such is the performance of the LIC, it is very unfair on the part of government spokesmen to make vile statements about the institution’s health through the media. For, such statements can shake the confidence of people in an institution that has acquired a place of pride in our economy and about which the government too has been making appreciative statements on the floor of parliament.

With the above observations, the AIIEA has asked the prime minister to look into this issue of public importance and ensure that the commitments made in the house are not flouted but honoured. Specifically, the AIIEA has asked for the following measures:

1) The public sector general insurance companies must not be allowed or forced to use the services of brokers.

2) Third party administrators for mediclaim settlements must not be made mandatory for the public sector general insurance companies, since trained manpower is available in these companies.

3) A structured cap is placed on the motor third party liability insurance through an amendment to the Motor Vehicles Act 1988, so that the motor third party liability insurance, which is a social necessity, does not become a loss making portfolio for the public sector general insurance companies.

The AIIEA has said these measures are absolutely necessary to save the public sector insurance companies from any destabilisation.