COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Hot and uncovered: the great insurance debate

Syed Firdaus Ashraf in Bombay

Even as the political parties battle over the Insurance Regulatory Authority Bill, insurance employees in Bombay have thrown up a strong argument against the entry of foreign insurance players.

Yesteryear leaders, wizened that they were, went in for a two-phase nationalisation of the insurance sector in 1956 (Life Insurance Corporation) and 1971 (General Insurance Corporation). Foreign companies were considered hazardous then, they point out.

Why then is the Centre hell bent on reversing the decisions of such wise men as then finance ministers C D Deshmukh and Morarji Desai? Have the foreign companies suddenly become saintly? They want answers.

Employee unions say the origins of the latest debate on insurance date back to 1994, when the R N Malhotra Committee, headed by the former governor of the Reserve Bank of India, submitted its report to the government, recommending opening up the sector for private players, including foreign companies.

Since then, the country has seen four governments at the Centre.

Vijay Ganacharya, joint secretary, General Insurance Employees All-India Association, a union affiliated to the Communist Party of India, travels back in time: "Private and foreign insurance companies were involved in this sector after Independence. But they duped many investors. Some foreign companies shut down their companies overnight and ran away with the investors money. That is the reason why the then government nationalised the insurance sector. Now, tell me, where is the need to open up this sector for foreign companies?"

As an after-thought, he adds: "Even Morarji Desai, when he was the finance minister, nationalised the insurance sector in 1971, though he himself was a great supporter of privatisation. So there is no need to open up the insurance sector. We must learn from our troubled history, not repeat it."

Despite being on the other extreme of the political spectrum, the Swadeshi Jagran Manch, a sister organisation of the Bharatiya Janata Party, holds similar views. SJM national steering committee member Anil Gajke says: "We are not opposed to private Indian entrepreneurs. But we are opposed to the foreign insurance companies because their main agenda will be to repatriate the profits. And once they become a dominant force in Indian economy, they will increase premium amounts for insurance policies. The Indian people will have no other option but to buy their exorbitant policies. The decision is out of character and uncalled for."

Balderdash, says Paresh Parasnis, regional manager, Housing Development Finance Corporation that has a tie-up with Standard Life Assurance of the UK. "If foreign players enter, premium rates are likely to come down. The efficiency of the insurance sector will improve. Foreign funds will come in that can be used for infrastructure development which is the need of the hour.''

Rajya Sabha member and BJP ideologue K R Malkani, who has been vociferously opposing the insurance bill, does not buy that line. He says LIC and GIC are performing satisfactorily. For 1995-96, LIC had a total income from premia and investments of Rs 220.46 billion while GIC recorded a net premium of Rs 59.56 billion, he wrote in a leading daily. During the last 15 years, LIC's income grew at a healthy average of 10 per cent as against the industry's 6.7 per cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US).

LIC has even provided insurance cover to five million people living below the poverty line, with 50 per cent subsidy in the premium rates. LIC's claims settlement ratio at 95 per cent and GIC's at 74 per cent are higher than that of global average of 40 per cent.

So where is the need for the hurried entry of foreign companies? That is the argument.

Derek Stott, chief of Prudential ICICI Insurance, volunteers to join the debate. "The competition in the insurance sector will finally benefit the Indian consumers. And ultimately the economy will benefit if more players come into the insurance market."

Agrees Sam Ghosh, country manager, Allianz AG India. "The customer service level in India has to be improved a lot. India offers a huge potential; there is place in the market for several players. The question of foreign insurance companies emerging as a threat to LIC and GIC is preposterous."

Ghosh elaborates: "LIC and GIC are so well networked that it will take at least five years for the foreign insurance companies to break even."

Ganacharya is quick to dismiss such assurances as ''sugar-coated pills''. He strikes a note of caution. "Three governments have failed in ensuring the passage of the insurance bill. Even if the BJP passes the bill, their government won't survive."

For good measure, he recalls the SJM's resolve to unleash its cadres if the government somehow succeeds to push through the bill. The cadres will then work against the BJP's members of Parliament in their own constituencies.

Gajke of the SJM says the cadres are indeed ''totally disappointed'' that the BJP of all parties should favour the bill now, after opposing it vehemently when the United Front government tried to enact it. He points to the BJP's election manifesto which clearly states that the insurance sector will not be opened up for the foreign players.

Blind opposition is bad, says Parasnis. He says the Rakesh Mohan Committee on infrastructure -- it was formed during the P V Narasimha Rao's regime -- felt India would need Rs 4.5 trillion over the next five years and Rs 7.5 trillion by 2006 to meet its infrastructure needs.

"We need roads, power and superhighways. These things cannot be developed until there is some insurance company which can give a guarantee to these companies. So, it is essential for the foreign companies to come into India,'' says Parasnis.

Adds Ghosh: "There are many companies that want to venture into various infrastructure projects but they are not able to because there are no insurance companies to offer them sufficient cover."

That is not the end of pro-bill theories. Indians buy insurance based on what agents tell them. Most of them buy policies to save on tax. "Many other areas where there is enormous scope for insurance business have never been looked at seriously. That's why India is lagging behind," reasons Ghosh.

Malkani is not convinced. "The American Insurance Group with its capital base of $ 135 billion, can afford to undercut losses for years till LIC and GIC are wiped out. Once they achieve that, premium rates will be jacked up and monopoly will set in."

Business news