People's Democracy

Public Sector Domination Continues In Insurance Sector

THE public sector insurance industry recorded another praiseworthy performance for the financial year 2007-08. The remarkable performance of public sector insurance year after year since the opening up of the industry has surprised its critics. These critics had expected the public sector to wilt under the pressure of competition. Today they are silent as the good performance of public sector is not just related to the new premiums under-written but also in terms of innovation skills and setting very high standards of servicing. Therefore, it has truly been an excellent all-round performance.

The LIC achieved a moderate growth over the unprecedented growth it had registered in the previous financial year. It secured first premium income of Rs 43,813 crore through the sale of 3.76 crore policies under individual assurances. The LIC has also procured new premium of Rs 9260 crore through its group portfolio. It is expected that the total premium income would touch Rs 1,50,000 crore. With the total assests in excess of Rs 7,00,000 crore, LIC has retained the status of being the biggest financial institution in the country. It is this splendid performance of LIC that has raised the levels of life insurance premium penetration to 4.1 per cent of the GDP. This level of penetration is higher than those achieved in many developed countries including the United States.

The IRDA has released the unaudited new business statistics for the year 2007-08. As per the IRDA, the LIC has underwritten new premium of Rs 59182.20 crore (on the basis of annualised premium), which translates to a market share of 63.64 per cent. The seventeen private companies together have a market share of 36.36 per cent. The ICICI prudential with a market share of 8.93 per cent is a distant second to LIC. Eleven companies have a market share of less than 2 per cent. In the total premium mobilised in the country, the share of LIC is in excess of 80 per cent. This clearly demonstrated the total domination of LIC in the life insurance industry in India.

Today, the opponents of public sector are greatly surprised over the resilience and ability of LIC to innovate and raise its servicing standards. The LIC has been able to offer innovative products, better returns to its policyholders and has created unsurpassable records in claim settlements. The LIC has been settling over one crore claims each of these years. It has maintained a consistent record of settling over 99.86 per cent of the reported claims. It tops in conservation of business with the lowest lapsing ratio in the industry. In contrast, the private companies have settled only around 72 per cent of the reported claims and large number of these companies have more than 25 per cent lapsing ratio as against 4 percent of LIC according to the annual report 2006-07 of the IRDA. The operating expenses of LIC are also the lowest in the industry at 5.54 per cent. It is this sound track record that has earned LIC the trust of the insuring public. Naturally over 230 million policyholders have placed their unflinching faith and trust in this great institution.

The performance of the four general insurance companies has been equally good. These companies secured a gross direct premium income of Rs 16899.49 crore in a de-tariffed regime. The profitability of all the four companies increased and their underwriting losses have substantially been reduced. For the year ending March 31, 2008, United India has earned a net profit of Rs 631.32 crores, an increase of 19.5 per cent over the previous year. The details of other companies are yet to be released but the story could be no different. We are convinced that the public sector could have performed much better had the government been prudent to accept merger of the four companies. The private companies on the other hand have shown increased underwriting losses. The record of private companies in relation to claim settlement is unsatisfactory and some state governments like Maharashtra who had entrusted their social security mediclaim scheme to the private companies have dragged them to courts on the issues of non-settlement of claims.

Despite such good performance, there is wild campaign that the public sector has faltered and its performance is not that satisfactory for the year 2007-08. This motivated campaign is aimed to malign and discredit the public sector. It is true that the public sector could not achieve the rate of growth recorded in the previous year. But it is equally true of the private sector too which witnessed decline in the growth rates. The decline in the growth rate of the private companies is deliberately not discussed showing a clear bias against the public sector. What are the reasons for the slow down in the growth rates in the insurance industry? We have always held that it is the growth of the economy and levels of disposable incomes that enables the growth of the insurance industry. It is now acknowledged that the Indian economy had slowed down in 2007-08. The government itself had lowered the growth projections. The agriculture sector on which 60 per cent of India's population is dependent continued to remain crisis ridden. The manufacturing sector recorded the lowest growth rate for the last three years. The services sector that contributes 55 per cent to the GDP did not remain unaffected by the slow down. The RBI confirmed that the household savings declined while corporate savings increased. This shows the shift in the incomes from the household to spend a greater proportion of the incomes on food. The RBI also confirmed decline in the rate of financial savings. Despite all these handicaps and the constant attempts to encourage the private sector through governmental policies and the IRDA interventions, the public sector insurance has performed well and this is really creditable.

But many more challenges confront the public sector insurance industry today. The slow down in the economy would impact the entire insurance industry. The threat of further liberalisation of the sector continues unabated. There is aggressive demand to increase the limits of foreign equity beyond 50 per cent. The Economic Survey 2008 has suggested foreign equity beyond 51 per cent in health insurance. The Raghuram Rajan committee on financial sector reforms and the Anwarul Hoda committee on services sector have recommended complete liberalisation of financial sector. These committees have recommended detariffing of all insurance products and reducing of the solvency margin to 100 per cent as the higher solvency margin rates have started affecting the private companies. These committees have also suggested that foreign investors be permitted to a larger share in the insurance companies and review of investment regulations to allow investment in emerging instruments and derivatives. The Anwarul Hoda committee has suggested total removal of FDI restrictions in reinsurance and an enactment of a comprehensive law on insurance. Similarly in the banking industry, the recommendations are for gradual reduction in statutory liquidity ratio and to make priority lending targets to be on market based approach. The committees further recommend the doing away of the branch licensing and reduction of government holding in public sector banks to 33 per cent. These recommendations are aimed to integrate the Indian financial sector into the architecture of the global finance capital. These recommendations would be disastrous not just to the financial sector but to the entire national economy. But the government which is committed to liberalise the financial sector would surely make attempts to implement these recommendations.

The crisis in the financial markets in the US and Europe would also impact our industry. It is not only the banks but the US insurance companies have also suffered huge losses due to sub-prime lending crisis and swapping of credit derivatives. The Business Standard April 22, 2008 reports that the biggest US insurer AIG has announced losses of over 32 billion dollars in the last one quarter itself compelling the company to announce raising of additional capital amounting to 20 billion dollars. Therefore, the US and its insurance companies would exert greater pressure for full liberalisation of Indian insurance sector. In the circumstances the struggle to defend the public sector insurance industry has become much more challenging. The movement led by AIIEA succeeded in preventing the privatisation of insurance sector for over one decade. This struggle has also helped the public sector to consolidate and gain due to the campaign of the employees among the public. The campaign to educate the public about the dangers inherent in the government policies and the need of a strong public sector to better the lives of the people must be further strengthened. We are confident that LIC and the four general insurance companies would continue to perform well overcoming all obstacles. But let us also understand that this is possible only when we heighten our campaign and struggle. This is the urgent task before the insurance employees. (Editorial, Insurance Worker, June 2008 issue)