Below we are reproducing highlights of the presentation by Com. Amanullah Khan, ex-President of All India Insurance Employees Association (AIIEA) at the meeting organised by the Kamgar Ekta Committee on December 13, 2020 on Privatisation of the Insurance Sector
Insurance workers have been struggling against privatisation for the past 26-27 years and as a result the government is still finding it difficult to privatise this sector. Their opposition to privatisation is because it will contribute to creating greater inequality; the profits will not be used for people’s welfare but to further enrich the billionaires. Further, workers and those from the marginalised sectors will be deprived of insurance services.
The national liberation movement was not only to get rid of the British, but also for a country in which every Indian would be equal and enjoy a dignified existence. India was an agricultural economy. The emerging capitalists did not have enough money to create infrastructure for the country. Before independence, eight of the biggest Indian capitalists drew up the Bombay Plan as per their needs. They wanted to create infrastructure in our country so that they could grow, but they did not have enough capital for that. What resources would the government have? So besides using funds from taxation, using the fiscal policy and borrowing, they wanted to mobilise domestic household savings of the people for that purpose.
Towards this end they nationalised the Imperial Banks and created the State Bank of India in 1955. In 1956, the public sector LIC was established by nationalising 245 national and international companies. LIC was given the task of providing security to the policy holders so as to build up their trust, creating awareness among the population about the need for insurance and reaching remote areas as well. All this was achieved by LIC and their objective of converting small savings of people into capital for infrastructure was fulfilled. Starting with Rs. 5 crore of government capital in 1956 by 2011 it had grown to only Rs. 100 crore. Today the assets of LIC are Rs 32 lakh crore. It invests Rs. 30 lakh crore in the Indian economy, making it the single biggest investor in the country. It has left no sector of the economy untouched.
Today LIC has 30 crore individual policy holders, and 12 crore are insured through group insurance schemes, thus is serving 42 crore people of the country. This is more than the population of the USA, which is the third largest country in the world! The LIC has reached every corner of the country. The wide coverage of life insurance has been achieved despite the very low-income level of majority of people. The average monthly income of Indian famers, who constitute 60% of our population, is only Rs. 6500. 92% of the workers are in the unorganised sector, with monthly income less than Rs. 10, 000. These people do not have the luxury of buying insurance.
Yet, the government wants to privatise the insurance sector. Why? There is huge concentration of wealth in our country, with 33 billionaires controlling about a third of the wealth. They now have enough money to take over banking, insurance and so on. That is why the government is hell bent on destroying the public sector. All the governments in the past 70 years, whether of Congress, BJP, Janata Party or others, have encouraged the private sector. They appointed consultants from time to time to push privatisation of LIC.
In 2001 Deloitte consultant pointed out that if the sum assured for any policy is less than Rs. 70,000, it is not profitable for an insurance company. Higher the premium, higher is the profit of the insurance company. So it advised insurance companies to forget about the needs of the poor and marginalised, to focus on the richer sections. Indeed, the average premium size of the LIC is Rs. 11,000 while that of the private companies, who have been focusing only richer sections of the society, is Rs. 76,000.
It also recommended that the government guarantees on all the policies should be removed so that the private companies that were entering insurance would get a level playing field. Our union countered this, saying that we were not playing a cricket match to need a level playing field! No private company ventures into the non-profitable sectors but the public companies do discharge their social responsibility.
The government claims that divestment of 10% shares of LIC is a very small step and does not amount to privatisation. However according to the regulations of the SEBI (Stock and Exchange Board of India), if new company is listed on the stock market, it has to offload at least one fourth of its shares. So, the 10% will in due course reach 25%. SEBI has further proposed to raise the limit to 35% from 25%. Insurance workers are convinced that disinvestment is the first step towards privatisation and they will continue to oppose it.
The government has given many bogus reasons for disinvestment. It says that the LIC should be more transparent. However, the claim settlement of the LIC is the highest in the world – 99.86%, while that of the private sector is only 80%! Moreover, the accounts of the LIC are placed before the parliament. whereas those of private insurance companies are not.
The government claims that LIC needs to be privatised because it needs more capital. This is a bogus argument as well. All the capital needed by the LIC is generated through internal resources. Neither does the government fund it, nor does it borrow money. When the LIC generates investible capital to the tune of Rs. 4 – 4.5 lack crore every year, it does not need to borrow from anybody!
The government also says that the LIC should be privatised so that our people can enjoy the fruit of its success. Only 3 ½ % of the population participates actively in the share market or invest in mutual funds. So, what the government wants is to let the value created by 135 crore people of our country be enjoyed by a mere 4 crore or so!
After the GIC was nationalised in 1972, it increased its reach in the rural areas, in the hinterland. It started products like cattle insurance, hut insurance, and so on, which are not profitable and which a private company will never do. The major portion of general insurance business that is profitable is fire and marine, which are the targets of private insurance companies.
Insurance unions have approached parliamentarians, reached out to the public, attempted to mobilise them to our side by explaining how privatisation is against their interests. Insurance workers appeal to the other public sector organisations, the 42 crore policy holders, as well as to the progressive people to unite with them and strengthen their fight. In turn insurance workers assure their support to all those struggling against privatisation.