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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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