P V Subramanyam, On Wednesday 27 July 2011, 6:10 PM
Well this is not about Animal farm. It is about the state of the life insurance industry in India. Let us see the imaginary conversation between the LIC and Ministry of Finance.
LIC: Good morning sir. Here is a cheque for the IPO Government Nonsense Ltd.'s public issue for Rs. 8000 crores. I hope the issue will go through.
MoF: Yes of course, the issue is for Rs. 10,000 crores, so it will go through.
LIC: Sir life is become very difficult with IRDA saying there has to be a level playing field.
MoF: What level playing field are you worried about? The expenses?
LIC: No sir. Expenses the industry has taken care of by increasing the mortality rates and rider rates
MoF: Oh! Then what are you talking about?
LIC: Sir IRDA has suggested to the government that clause providing Government guarantees for LiC policy is unfair, because the others are not allowed to do it, or cannot do it.
MoF: Do people believe that SBI has government guarantees?
LIC: Not sure sir, maybe maybe…that is why they are able to sell so many policies perhaps..
MoF: what do you want us to do?
LIC: Sir just clarify in the press..that the guarantee still stands.
MoF: Of course we will be able to clarify…but tell me one thing..you sell more ULIPs these days, and ulips cannot be guaranteed, no?
LIC: Of course sir, you and I know that ULIPs cannot be guaranteed, but the public will not know
MoF: How does it still help, I did not understand.
LiC: Sir, our agents will tell the client …Sir the Sum Assured is Rs. 10 lakhs, and the premium is Rs. 25,000 per annum. If you pay for 3 years…you will get Rs. 10 lakhs.
MoF: Will people believe this?
LiC: Sir our agents are well trained. They will explain …see 'Sum Assured' means LIC is assuring you the sum of Rs. 10 lakhs. We will then also attach this news item of policies being government guaranteed.
MoF: That is brilliant, but I hope you are selling enough of the classic endowment plans. The next year's borrowing program is on my table and we are likely to be in the market for Rs. 200,000 crores (unless the Supreme Court allows us to open all the vaults in all the temples and keep the money with the government). We need your support.
LiC: Of course sir. We will subscribe. Classic endowment is still a 30% commission product, so sales is easier to achieve. Sir what about IRDA's level playing field?
MoF: Do not forget the old adage 'the regulator speaks the language of the strongest player'. So that will continue.
LiC: What if other life insurance companies also ask for the same facility from the government?
MoF: We have been considering that. When we offered it to a private sector life insurance company, they asked for our balance sheet. What cheek!
LiC: Then what happened sir?
MoF: They removed the LiC market value from our balance sheet, and the net-worth turned negative!
LiC: what did they say sir?
MoF: so cruel, they asked 'Should LIC be asking for the government's guarantee or should the government be asking for LiC's guarantee? Such cheap people! I was wondering whether we should renew their license!!
——end of conversation———
The author P V Subramanyam is a Chartered Accountant by qualification and a financial trainer by profession. Writing being a passion he also regularly pens his thought in his blog Subramoney.com
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