AIIEA CIRCULAR ON INSURANCE ACT

ALL INDIA INSURANCE EMPLOYEES’ ASSOCIATION

LIC BUILDING SECRETARIAT ROAD HYDERABAD

Cir.No.13/2011                                                                                       14^th December 2011

To all the Zonal/Divisional/State/Regional Units:

Dear Comrades,

INSURANCE LAWS (AMENDMENT) BILL 2008

The Parliamentary Standing Committee on Finance that scrutinized the Insurance Laws (Amendment) Bill 2008 submitted its Report to both the Houses of the Parliament on 13^th December 2011.  The Government brought this Bill seeking to amend the Insurance Act 1938, IRDA Act 1999 and General Insurance Business Nationalisation Act (GIBNA) 1972.  The Government argued that many provisions in these Acts have become archaic and therefore it is necessary to amend them to conform to the modern insurance business.  The Government also said that these amendments are being brought as per the recommendation of the National Law Commission and K.P.Narasimhan Committee.

The AIIEA demolished the arguments of the government to conclusively prove that this Bill is designed to further liberalise the insurance sector and place this sector into the architecture of the International Finance Capital.  The unprecedented campaign of the AIIEA brought to light that the major aim of this Bill is to give foreign capital greater access to domestic savings by hiking FDI limit to 49% from the present 26%.  The campaign also informed public that the amendment of the GIBNA 1972 would pave way for privatization of GIC and the four Public Sector General Insurance Companies.  We argued that these measures would harm not just the insurance sector but the entire economy.  The domestic savings play the most important role in development of the national economy and allowing greater control over these resources to the foreign capital cannot be a prudent measure.  The campaign mobilized the public opinion to an unprecedented level.  We reached out to the Members of Parliament and other elected representatives through this campaign.

The AIIEA made a written submission to the Standing Committee.  Subsequently Com Amanulla Khan, President and Com K.Venu Gopal, General Secretary were invited to depose before the Committee on 1^st November 2010.  The AIIEA effectively placed our views before the Standing Committee and argued that the Government has erred in its assessment over the beneficial impact of FDI and requested the Committee to reject the proposal of the government to hike the FDI limits.  The AIIEA also argued against the amendment to GIBNA that would effectively lead to privatization of the General Insurance Companies.  The AIIEA demanded the protection of the interests of the policyholders and the agents.

The Report of the Standing Committee placed in the Parliament makes the following recommendations on the major issues:

1. There is no need to increase the limit of FDI to 49% as “the government seems to have decided upon this issue without any sound and objective analysis of the insurance sector following liberalization”.  Cautioning the government of the global financial crisis, the Committee has recommended to the government that the private companies may explore avenues to tap the domestic capital instead of increasing the FDI limits.

2. While agreeing to allow the 100% subsidiaries of the foreign reinsurance companies into reinsurance business by opening a Branch in the country, the committee has asked the government to draw up proper regulations under IRDA to ensure that the premium amount is not taken out of the country.

3. The Committee rejected the proposal to reduce the minimum capital for the standalone Health Insurance Companies to Rs.50 crore and has suggested that it should remain Rs.100 crore.

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4. The Committee has rejected the proposal to allow foreign insurers in Special Economic Zones without any regulation.  The Committee has observed that allowing free access to foreign insurers in SEZs would be discriminatory for Indian insurers. Also the Committee pointed out that domestic capital may be taken out of the country if they are not regulated.  The Committee also pointed out that Foreign Banks are not allowed any special dispensation in SEZs and they are under the supervision of RBI.

5. The Committee has recommended retaining the statutory protection on payment of commission to Agents. The Committee further recommended statutory safeguard on payment of renewal commission and hereditary commission to the legal heirs of the agents. The Committee also felt that IRDA should continue to be authority over appointment of agents.

6. The Committee felt that the system of independent licensed Surveyors and Loss Assessors should continue and they should not be the employees of the insurance companies.

7. The Committee recommended that the system of Common Motor Pool (Third Party Insurance) should continue till the issues relating to premium rates and the widening of the insurance net for motor vehicles are resolved.

8. The Committee has made some recommendations on Nominations, Assignments and the clause relating to Policies being called into question, in order to protect the interests of the policyholders.  The Committee said that Trading in policies should be prohibited.

9. The Committee has allowed the amendment to GIBNA which permits the public sector general insurance companies to raise capital from the market.  The Committee has advised the government to ensure that at no stage the government shareholding comes down below 51%.

As can be seen our movement and campaign has succeeded to a large extent.  We have been able to secure recommendations rejecting the hike in FDI.  On other issues also our concerns have been met to a great extent. 

But on the issue of privatization of public sector general insurance industry, the Committee has gone along with the government with a suggestion that the Government shareholding in GIC and the four PSU companies should not come down below 51%.

Com Moin-ul-Hassan, MP, CPI (M) has submitted a Dissent Note arguing against the privatization of the general insurance companies.  His was the only Note of dissent.  This Dissent Note forms part of the Report of the Committee submitted to the Parliament.  Com Moin-ul-Hassan has argued that instead of divesting the shares of these companies, the government should consider consolidation of the four companies on the lines recommended by the Parliamentary Committee on Public Undertakings.  Com Moin-ul-Hassan has argued that consolidation will enable leveraging combined strength to meet the needs and requirements of the economy and the Indian society.

While we welcome the recommendations on FDI, we are totally opposed to the recommendation for privatization of the PS General Insurance Companies.  The government now would require sometime to firm up its stand on the Committee’s recommendations.  This time should be utilized to build up a massive campaign against the privatization of the general insurance companies and demanding their consolidation.  Effective mobilization should be made to enlist the public support to our cause.  The Units both in Life and General sectors should take up this task immediately.

With greetings,

Comradely yours,

Sd. . .K.Venugopal

                                                                                2                                                General Secretary.