Life Insurance Corporation: Don't go the UTI way

Words like ’trust’ and ’life’ are abused in India. First it was the Unit Trust of India debacle – a state-owned mutual fund that collapsed. Unit Trust of India adhered to mutual fund rules framed by Securities and Exchange Board of India. Yet, it remained an extra-constitutional body as the UTI Act 1969 continued to be the Act to govern UTI despite Sebi. The result was that the government had to step in, using taxpayers’ money, and fill the gap between assets and liabilities.

Now, it appears that the Life Insurance Corporation of India could follow the same downhill path if reforms do not happen, and fast. If the government does not want the same to happen with LIC, it needs to put reforms on the fast track. LIC must be converted into a company that is similar in structure to private insurance companies. Repel the LIC Act.

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Instead LIC has demoted its chairman to the post of managing director, an appointee of the central government. Rakesh Singh, a bureaucrat, will be the interim chairman for three months from May 3. Hello?! Can someone explain how this will affect insurance holders and tax payers money?

A report in this morning’s mint newspaper said that LIC was found to be running a notional valuation deficit of around Rs.14,000 crore in three plans of its guaranteed-return annuity policies-Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay. A finance ministry panel is scrutinizing all investments made by LIC in 2008 and 2009 and has prepared a report, which is yet to be published. (Get this one out!)

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We are back to that recurring reality, the song playing in a loop: the central government is facing some serious situations in state-owned heavyweight companies funded by the taxpayer. The government has allowed private mutual funds and insurance companies to set up operations in India and the presence of many players in these segments has reformed service standards. Even LIC has matched step to private players. When was the last time you saw your agent? LIC is actively using the internet to sell insurance products and gather premia.

And studies conducted on the sector by academics and industry associations indicate that LIC continues to enjoy a 50 percent market share in the insurance sector since reforms in 1999. Most of the private insurance companies though are bleeding.

The government puts up working papers on reform-related issues. Not a single paper talks of reforms at Life Insurance Corporation.

First, the government needs to ask LIC to publish financial information with regular frequency. Let the world know the true state of assets and liabilities of the corporation.

Second, a serious step should be taken to list the insurer on stock exchanges. Let it comply to corporate governance rules followed by other companies.

Nobody is suggesting privatisation here. A pre-emptive action is always better than a fire-fighting exercise that can cause distress to those insured and those paying taxes in this country.