HVK Archives: Union views opposing opening insu. sector (Part III of IV)
Union views opposing opening insu. sector (Part III of IV) - (no publication)
National Organisation of Insurance workers
()
2 August 1997
Title: Union views opposing opening insurance sector (Part III of IV)
Author: National Organisation of Insurance workers
Publication:
Date: August 2, 1997
Enclosed pleased find herewith a brief Note prepared by us on our views on
"WHY WE OPPOSE OPENING OF INSURANCE SECTOR TO PRIVATE INDIAN CAPITAL AND
MULTI NATIONAL CORPORATIONS". The notes is prepared for the benefit of
M.Ps. and opinion makers in the field to effectively argue or case.
WE ARE NOT AFRAID OF COMPETITION
We are not afraid of competition. There may not be direct competition as
far as procuring business is concerned but the fact remains that
competition is in vogue in respect of tapping the household savings. The
savings sector to day comprises of mutual funds, stocks, bonds, and many
other instruments. The life Insurance saving is one of the many
alternatives available to the customer to invest his funds and to this
effect, LIC is facing indirect competition. ft must be stated that in
competitive market LIC has postered growth rate of around 20% during the
year 1996/97. What concerns us most is not the present day competition but
Government's efforts to open up Insurance Sector to MNCs and private Indian
capital in the name of competition.
What are the prospects of further growth in insurance business? The growth
rates of LIC and GIC are substantially higher than those of insurance
companies in the developed countries. A feeling that "competition" will
create a magical effect on the growth of 'insurance business is misplaced.
The stark fact is that in our country, large sections of the population
have no disposable incomes to buy insurance. The insurance cover can be
provided to them largely through social security schemes which the LIC and
GIC have been doing to a certain extent. For instance, LIC has a social
security fund of around Rs.230 crore. The yield on the investment of this
fund is used to provide 50 p.c. subsidy in the premium for group insurance
of selected occupational groups.
Such social security schemes can be run on the strength of cross-subsidies
available from more established and profitable lines of business. The
entry of private companies will result in a fierce competition in the
traditional fields - mainly for grabbing big business which yields high
profits - and after being dragged into such a competition the LIC and GIC
will have to give a low priority to rural business which yields less profit
or no profit and becomes loss-incurring in remote areas. For the same
reasons, they may have to abandon social security schemes'
WHY WE OPPOSE
PRIVATISATION / COMPETITION ?
1. LIC operates within a mandate that is more social than commercial. The
kind of such social obligation is not cast on private organisations. Even
the Regulatory Authority shall not be in a position to control private
entrepreneurs as evident in CRB/ Harshad Mehta Scams despite SEBI and RBI
controls.
2. The duty Is cast on LIC to fulfill social obligation such as investing
funds in Electricity, Housing projects, etc. Private Sector Is not obliged
to do SO.
3. LIC cannot break the laws but. private sector can play with the laws.
(Namely, failure to deposit Provident Fund contributions, etc.)
4. LIC is responsible to exercise sufficient self-control and prudence to
ensure maximum returns consistent with the security of the capital of the
institution. In competitive environment, the private companies may not be
able to exercise such rigorous controls causing irreparable damage to the
interest of the insuring public.
5. LIC has provided job opportunities to SC/ST, Ex-Servicemen and provided
income cover to weaker sections of the society as a matter of social'.
obligation. The private insurer may not take the kind of the
responsibility LIC has shouldered.
6. The private organisation is solely guided by the profit motive in its
business whereas, for LIC social good is the driving force with the
responsibility to run the business on sound footing.
7. The private companies would be highly selective in their approach in
order to ensure profitable operations. They will always concentrate on
urban business and neglect rural ones.
8. Competition does lead to wasteful expenditure. Selling cost will go up
when several organisations multiply and fortify efforts to sell same type
of product to same client. It may give rise to unhealthy trade practices.
We cannot afford the luxury of frittering away of precious national
resources for the sake of competition.
9. The Competition may give rise to high management expenses, siphoning off
of public funds and concentration of economic powers in the hands of a few.
10. In India, the big capitalist houses have no remarkable contribution
towards upliftment of Indian social and economic conditions.
11. The MNCs and foreign companies want to enter Indian market not with a
view to serve consumers or support our economic activity. Their only
consideration is to exploit Indian consumer and market and earn huge
profits. In USA around 100 insurance companies are closed down because of
stiff competition, shrinking market etc. They are now seeking greener
pasture in Indian market.
12. The big industrial houses have been successfully drawing enormous
private profits from the companies controlled by them in the form of super
high salaries and facilities and perks for several of their family members
and relatives including those whose efficiency is known to be very low.
13. It is not true that private sector organisation render efficient
services to the customers. Very often in Private Sector, customer
orientation is not uniformly evident. At times, customers are taken for
granted.,
14. The Insurance Sector is financially sound and do not need any outside
financial support.
15. The growth of business and the generation of reserves in life insurance
industry wad quite impressive. It is doubtful that these achievements could
have been possible in a competitive market.
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