ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Privileging Shareholders over Policyholders

LIC IPO

There are serious apprehensions that post initial public offering, the Life Insurance Corporation of India would have to change its very business model, whereby it will have to push for the sale of more non-participatory policies as 100% of profits from such policies will flow to the shareholders. Thet neglect of the rural business will hurt the interests of the lower-middle and poorer sections who look at LIC policies as an instrument of social security.

 

The union government’s decision to list the Life Insurance Corporation of India (LIC) through an initial public offering (IPO) evoked mixed response and has generated widespread debate. The big business and industry have welcomed this decision calling it a commitment to reforms that would inspire confidence in the investors. The well-meaning citizens and trade unions are opposing the LIC IPO saying that the structure of the biggest financial institution in the country is being disturbed just to raise resources to meet the fiscal deficit target. This would seriously undermine the very objectives of establishing the LIC. They argue that the LIC has played a most important role in the industrialisation of the country and its social development. The LIC IPO is being compared to the sale of family silver to meet immediate needs. Incidentally, P Chidambaram, former finance minister, had termed the LIC as the “Jewel in the Crown” and the late Arun Jaitley, finance minister in the National Democratic Alliance-I had called it the most valuable company for the Indian economy.

The government for the past two years has been making hectic preparations for the LIC IPO. The finance minister while presenting the union budget for 2020–21 had announced the decision to list the LIC in the stock markets. The reasons given in the justification for this decision were that it will bring greater efficiency and transparency in the functioning and help in accessing the markets for resources. The trade unions argue that the efficiency of a life insurance company has to be measured in terms of its claim settlement record and bonus payout to the policyholders. Here, the LIC has the best record in claim settlement with very low repudiation levels compared to the private sector. It has rewarded policyholders with competitive rates of bonus. Since the LIC makes public disclosure of its financial statements every quarter and its accounts are scrutinised by Parliament every year, it makes its functioning transparent. The LIC also generates between `4 lakh crore and `5 lakh crore investible surpluses annually and therefore has no need to access capital markets for funds to expand business activities. This makes it clear that the disinvestment in the LIC is part of the agenda of the government as laid down in the policy on public enterprises. This policy has categorised public sector enterprises into strategic and non-strategic sectors. The policy recommends the outright sale of all non-strategic public units and to have a bare minimum presence in the strategic sector. Financial services, including insurance, are classified as a strategic sector.

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Updated On : 14th Mar, 2022
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