Below we are reproducing highlights of the presentation of Kamgar Ekta Committee on December 13, 2020 on Privatisation of the Insurance Sector
The Insurance business in India is divided broadly into life insurance and general, of which general is divided into Fire, Marine and Miscellaneous. The Miscellaneous category includes motor and two-wheeler, crop, health, etc. The life insurance sector in India is the largest with 75% of total insurance business.
There are 7 public sector insurance companies in India: Life Insurance Corporation, National Insurance Company Limited, Oriental insurance Company Limited, United India Insurance Company Limited, New India Assurance Company Limited, General Insurance Corporation of India Limited (National Re-Insurer) and Agriculture Insurance Company of India Limited (the company floated by Non-Life Public Sector insurance companies along with NABARD).
A life insurance company collects savings of people over their life time. Unlike a bank the savings cannot be withdrawn before the agreed time unless the insured person dies before that. People put their money into life insurance mainly to safeguard their near and dear ones from untimely death and partly to save for their old age.
First and foremost, people want to be assured of the amount committed by the insurance company (the cover) in case of an untimely death or some other unfortunate event. They are willing to pay a reasonable price for this (premium). They want prompt and quality service. Can a private insurance company that is run solely to maximise the profit of capitalists satisfy all these expectations, is a big question in minds of people.
Despite people’s apprehensions, successive governments have done step by step privatisation of the insurance sector over the past 20 years.
- Foreign capital up to 26% was allowed in 2000 and this was raised up to 49% in 2015.
- Partial privatisation of General Insurance Corporation (GIC) and New India Assurance Corporation began in 2017 through divestment of shares.
- Partial privatisation of LIC was announced by the Finance Minister in the Union Budget of 2020.
- A further push to privatisation was given on 16 Nov 2020, when the Department of Investment and Public Asset Management (DIPAM) invited bids for engagement of a consultant for arriving at the value of LIC in preparation of sale of its shares.
- On the same day, the DIPAM signed an agreement with the World Bank for providing advisor services on sale of assets of public sector units. The advice given by the World Bank is invariably in favour of private big monopolies and against interests of people.
Capitalists are keenly interested in entering the insurance sector because the amount of capital required for starting or running an insurance company is extremely small as compared to the total funds they get to control. The total amount of funds an insurance company can control is about 75 times of capital put in by capitalists, as of now in our country!
Further, insurance companies have a steady, assured flow of money as premium or contributions to insurance policies or pension plans and for a very long period of time. In 2018-19, the life insurance premium collected in India amounted to Rs. 3.37 lakh crore by the public sector and Rs. 1.71 lakh crore by the private sector insurance companies, totaling to Rs. 5.08 lakh crore; the general insurance premium of Rs. 1.69 lakh crore included the public sector premium of Rs. 0.69 lakh crore and Rs. 1 lakh crore by the private sector. Thus, in the general insurance category, the private sector has already outstripped the public sector. The total premium collected was as much as Rs. 6.77 lakh crore in one year.
There is a steady inflow of large amounts of premium which is invested in various types of investments. Insurance companies are important players in financial markets, including shares, as well as corporate and government bonds. Capitalists use these funds to meet the capital requirements of enterprises in which their companies are interested in rather than those in the interest of policy holders.
Many Indian and foreign companies and banks have already entered the insurance sector in India: Aditya Birla – Sun Life, Tata – AIA, Anil Ambani – Nippon Life, Bajaj – Allianz, Sunil Mittal – AXA, Shriram, Raheja, Max, HDFC – Ergo, ICICI – Prudential, Kotak Mahindra, SBI, PNB, Canara Bank, and IDBI.
Another reason for keen interest of foreign and Indian insurance monopolies in India is high growth rate and a huge potential of insurance sector compared to other countries. During 2018, the total insurance premium in India increased by 9.3 percent whereas global total insurance premium increased only by 1.5 percent. At the same time, the life insurance premium in India increased by 7.7 percent when global life insurance premium increased only by 0.2 percent.
The experience with private insurance companies before nationalisation in India and in other countries shows that privatisation of insurance sector is not in the interest of people. In India private life insurance companies, before nationalisation in 1956, were known for unscrupulous business practices and frauds. They used to have high premium rates and had a bad record of settling claims. Insurance is a type of business that ought never to fail if it is properly run. Yet, during 1950-1954, 43 private life insurance companies failed in India!
While defending the Life Insurance (Emergency Provisions) Bill in the Lok Sabha on 29th February 1956, then Finance Minister, C D Deshmukh said, “Insurance is an essential social service which a welfare state must make available to its people and the State must assume responsibility for rendering this service once it cannot be provided in any other manner” and “I would like to emphasize that nationalization in this field is in itself justifiable. With the profit motive eliminated, and the efficiency of service made the sole criterion under nationalization, it will be possible to spread message of insurance as far wide as possible, reaching out beyond the more advanced urban areas and into hitherto neglected, namely, rural areas.”
The above justification for state-owned insurance sector still holds. And yet successive governments have moved in the direction of privatisation.
Tremendous pressure was exerted by Indian and foreign monopolies to open up the insurance sector in India after the signing of GATT (General Agreement on Trades and Tariffs). The Insurance Regulatory and Development Authority (IRDA) law was promulgated in 2000 supposedly with the aim of protecting interests of policy holders by regulating the insurance companies but its real aim was to promote privatisation of insurance. It gave a big fillip to private health insurance by opening it to Indian private capital and to foreign capital up to 26%. The Insurance Laws (Amendment) Bill 2008 was introduced in order to increase the FDI limit on insurance to 49% and was strongly opposed by workers. Insurance workers participated actively in every all India general strike against attacks on rights of workers and against privatisation, including the ones in July and November 2020. Despite the opposition of workers and people, the FDI limit was finally raised to 49% in 2015.
Every Government, irrespective of Party, has been implementing privatisation of insurance sector.
The recommendations of the Malhotra Committee, set up in 1993, have been implemented step by step by successive governments. There has been a huge growth of the private insurance sector in the past 20 years. It now holds about 34% of life insurance and 40% of general insurance business.
People, however, still trust the government owned LIC. It was formed in 1956 to take over the business of 243 nationalized Indian and foreign companies. Despite the entry of 23 private players, many as joint venture with foreign insurance monopolies, during last 20 years, LIC still dominates with 2/3rd of life insurance market.
There is absolutely no justification for the proposed privatisation of the LIC! The LIC has been extremely profitable for the Central Government. While the total investment of the Central Government has been only Rs. 100 crore, the dividend income received in just two years – FY 19 and FY 18 – was over Rs. 5000 crore!
The government owned general insurance sector has already been partially privatized. With the divestment of shares of General Insurance Corporation (GIC) in October 2017 and of New India Assurance in November 2017, the government share in both has already been reduced to about 85%. There is a plan to divest 10% more now. The GIC, like LIC, is a profitable company; it paid dividend of Rs. 1100 crore in FY 2017.
Further Steps towards privatisation of general insurance are in the offing. It is proposed to merge United India, Oriental and National into one and the merged company is to be taken over by New India Assurance. The merger would lead to a loss of thousands of jobs. These three companies need additional capital of Rs. 915,000 crore. There has been no recruitment in the public sector general insurance companies since 2018. In the next three years 25% of their workforce will retire.
Privatisation of insurance sector would adversely affect 1.6 lakh workers, 28 crore life insurance policy holders, 3 crore general insurance policy holders, over 10 lakh life insurance agents, 2.5 lakh general insurance agents, over 4 crore individual health insurance policy holders and 5.7 crore peasants availing crop insurance.
The struggle of insurance workers against privatisation deserves support of all those who care for the future of our society and for the wellbeing of toiling majority of people. The struggle against privatisation is a struggle of the entire working class. Our victory requires the unity of the whole class and solidarity with every worker fighting against privatisation. Our victory requires the support of all present and likely insurance policy holders!