ALL INDIA INSUARANCE EMPLOYEES’ ASSOCIATION
LIC Building Secretariat Road Hyderabad
President: AMANULLA KHAN
Gen. Secretary: K VENU GOPAL
21st February 2012
A DANGEROUS MOVE
The national media has reported that IRDA is contemplating to allow insurance companies to invest in equity derivative, credit default swaps and interest rate futures. This move has dangerous implications for the savings of the policyholders and the stability of the insurance industry. The All India Insurance Employees’ Association strongly opposes this move.
The derivatives are believed to be the financial weapons of mass destruction. This is proved during the global financial meltdown. These so called innovative financial instruments were largely responsible for the global financial crisis. The insurance industry was also hit by this crisis in large parts of the world. The insurance giants like AIG and other big companies in the developed countries suffered enormously due to their exposure to credit default derivatives and other such instruments. The Indian banking and insurance escaped the impact of this crisis since they did not have any exposure to these financial instruments.
The IRDA is arguing that there is a mismatch between the assets and liabilities of the insurers as not many long term investment avenues are available in the country. Hence it is contemplating to allow investments in derivatives. This is surprising as insurance funds play an important role in the national economy and provide funds for infrastructure and social development. The Prime Minister and Finance Minister have been speaking that India requires huge funds for infrastructure. The IRDA can do well to take up the issue of enhancing the limits of investment by the insurers in the infrastructure schemes from the present 15%. This would not only help the national economy but will also provide stability and security to the policy funds. Derivatives are pure speculative instruments and AIIEA would oppose any move that will endanger the safety and security of the policyholders’ money in speculative activities.
(K. Venu Gopal)