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Why LIC needs funds if it is growing @
60%
LIC is enormous. And continues to grow. The monolith has come
a long way from its earlier monopolistic days. It has over ten
competitors today gnawing at its market share aggressively –
but then LIC has a trump card. Its products come with government
guarantee, it has a stronghold in rural areas and enjoys a strong
brand equity. While it may take some time for private insurers
to match LIC’s size and reach, the corporation is already
working out strategies to retain and further build marketshare.
But offlate, there are issues to be sorted out. It’s
the health of the insurance behemoth. Will it continue to be
as healthy as it is now? And if the government wants it to continue
to remain in the pink of health certain changes need to be brought
about at the earliest in the LIC Act 1956. Consultants Deloitte
Touche have recommended that the need of the hour is corporatising
the organisation. LIC is growing at the rate of 60 percent.
According to the IRDA, life insurance companies need to maintain
solvency margin requirements of Rs 100 crore. And to fulfill
statutory norms, LIC will need to set aside around Rs 2000 to
Rs 3000 annually considering the size at which it is growing.
At present this is being done from surplus funds. But then that
cannot be continued for long. Which means either the government
will have to pump in funds on a regular basis or the behemoth
will have to float a public issue. This will warrant an amendment
in the LIC Act which may not be as easy as it sounds. Besides
LIC also wants that it be allowed to function on its own –
set its own standards, conditions, targets of agents, development
officers without any outside interference.
The finance ministry has clearly stated that it is not in favour
of LIC going public. Instead it has an even better option. The
Finance Ministry may choose to stand guarantee for risk management
losses. That way the need for any amendment in the LIC Act would
be ruled out. But then what about empowerment to LIC? Only time
can say.
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