Lic Sets Terms For Facing Pvt Competition

Life Insurance Corporation (LIC) has sought an increase in its capital base from the present Rs 5 crore as a prerequisite to facing competition from the private sector as and when the life insurance industry is thrown open to private investors.

In a note on the need to strengthen the organisation to face private sector competition, LIC has told the parliamentary standing committee on finance that it should be made autonomous and vested with powers to make management decisions based on business principles and in the context of market situations. LIC should also be allowed to take measures in order to improve yield on its investments in equities and real estate.

 

This is necessary because private companies will have greater freedom in terms of investments and the corporation is bogged down in huge investments made in low-yielding securities.

Entry of the private sector will also necessitate a sharp reduction in its investments on socially purposive sectors and a review of the premium rates on small sum assured policies, the note said.

The note pointed out that private sector companies, if allowed, will have a much larger capital base than what LIC has. (The Malhotra committee has recommended a capital base of Rs 100 crore for private insurance companies).

It is desirable to increase the capital and build up reserves to a level commensurate with the liabilities of the corporation, so that the capital structure is in line with international standards, the note said. It also suggested that a part of the valuation surplus be set apart in a reserve fund.

LIC has also expressed apprehension that the private sector will wean away a large part of its pension and group superannuation business. At the same time, the private sector will bring about an increase in the overall insurance market. Besides deepening and broadening of the insurance market, competition will also result in renewed emphasis on research, training, innovation in products and introduction of new channels of distribution.