XI LOK SABHA DEBATES,   Session V (Monsoon) 

Tuesday, August 05, 1997/Shravana 14, 1919 (Saka)



Type of Debate: GOVERNMENT BILL

Title:	Discussion on the Insurance Regulatory Authority Bill,1996 moved by
Shri P. Chidambaram on the 24th July, 1997 (Contd.-Not Concluded).

TEXT :
 13.49 hrs.

MR. CHAIRMAN (SHRI CHITTA BASU): Now let us go to  the  next  item  -  further
consideration of the Insurance Regulatory Authority Bill. Shri Basudeb Acharia
was  on  his  legs  and  he  has already consumed nineteen minutes. Achariaji,
please tell how much time you will require.

SHRI BASU DEB ACHARIA (BANKURA): I shall take another ten to fifteen minutes.

MR. CHAIRMAN: That is good.

SHRI BASU DEB ACHARIA :  Sir, yesterday I was mentioning about what will be
our requirement, as per the Common Minimum Programme, for infrastructure
development.  The requirement will be to the extent of 200 million dollars,
that is, Rupees seven lakh crore.

	Sir, the extent of resouces generated by L.I.C.  and G.I.C.  is such
that even after assuming that there is no improvement in their performance,
these two organisation can provide or will be able to provide to the extent of
Rs.1,00,000 crore during the next five years.  Then why should we invite the
foreign insurance companies when our L.I.C.  and G.I.C.  are capable of
generating funds?  They have generated funds since their nationalisation.  In
the ?Fourth Five Year Plan they generated even more than the targated amount.
The target was Rs.  8,000 crore and the amount provided by L.I.C.  was Rs.
12,000 crore.  In the Eighth Five Year Plan it provided Rs.  33,000 crore.

	The performance of G.I.C.  is also not bad.  In 1994-95, its
settlement of claims was more than 74 per cent whereas the international
standard is only 40 per cent.  The settlement of claims is one of the criteria
for judging the performance of L.I.C.  and G.I.C.  The gross profit was Rs.
1,081 crore and the net profit was Rs.  333 crore in the case of L.I.C.  The
growth rate of G.I.C.  is 19.5 per cent, much more than that of any other
company of the United States of America or the United Kingdom.  But the
problem will be that the premium income of G.I.C.  is around 1.5 billion
dollars which is much less than some of the foreign companies.  You see the
premium income of one American company named American International Group
Incorporated which is seeking to enter into the insurance sector of our
country.  In 1993, when the former Prime Minister visited the United States,
they sought entry into the Indian insurance sector.  What is the premium of
this particular company of the U.S.A.?  It is as much as 20.1 billion dollars.
If these companies are allowed to enter into the Indian insurance sector, then
what will happen to our L.I.C.  and G.I.C.?  We have the experience of
competition after nationalisation also.  What was the net result of
competition?  This competition was allowed among the subsidiaries of G.I.C.
in 1994.

	We have seen the result.  We have the experience of this competition,
the undercutting of the premium etc.

	This will happen if the foreign companies and multinational  companies
are  allowed  to enter into the insurance sector of our country. Why should we
allow foreign multinational  companies?  Why  should  we  allow  even  private
insurance  companies  into  the  insurance  sector of our country? What is the
necessity? Is there any necessity? Will the competition  lead  to  efficiency?
What  was  our experience of the pre-nationalisation period when there were as
many as 245 private insurance companies? I can quote from the speech delivered
by the former Finance Minister, Shri C.D. Deshmukh  while  nationalising  Life
Insurance  Corporation  of India in 1956. What Shri Deshmukh said at that time
is still relevant. He said :

        
        "The   nationalisation   of  Life  Insurance  will  be  another
        milestone on the road the country has chosen in order to  reach
        its   goal   of  a  socialistic  pattern  of  society.  In  the
        implementation of the Second Five Year Plan,  it  is  bound  to
        give material assistance, into the lives  of  millions  in  the
        rural  areas,  it  will  introduce  a new sense of awareness of
        building for the future in the spirit of calm confidence  which
        insurance alone  can  give.    It  is  a measure conceived in a
        genuine spirit of service to the people.  It will  be  for  the
        people  to  respond,  confound  the  doubters  and  make  it  a
        resounding success."

        
It is still relevant.

	If   we   allow  the  foreign  companies  and  the  competition,  from
competition, the undercutting of premiums and  all  the  irregular  activities
will  start  taking place which we had in our country prior to nationalisation
in 1956. What is stated in the Statement of Objects and Reasons of  the  Bill?
It  has  been  stated  that  after  nationalisation, the role of Controller of
Insurance diminished over a period of time. There was the Act  of  1938  which
was  not  repealed,  if  I am correct, and the role of Controller of Insurance
became insignificant. Why? It was because there  was  no  necessity  for  such
Controller  of  Insurance  because when there was Controller of Insurance, all
such things happened. We know about a  company  like  Dalmia.  What  did  that
company do during pre-nationalisation period?

	Since  1956,  in case of Life Insurance Corporation of India and since
1973, in case of General Insurance Corporation of India, we did not  feel  the
necessity  of a Controller of Insurance or a regulatory authority. Without any
regulatory authority, these two organisations functioned very efficiently  and
contributed much more to the nation.

	What  is  the  need for an Insurance Regulatory Authority? It has been
stated that there would be a competition. Why should there be  a  competition?
The Minister of Finance has stated that LIC and GIC would remain in the public
sector  and  that  LIC  and  GIC  would  be  strengthened.  How  would they be
strengthened by inviting foreign companies and private  companies?  I  do  not
think  that  they  can  be strengthened by this way. In my firm opinion, if we
open up the insurance sector, it will only weaken both LIC  and  GIC.  So,  we
should  not  open  up  our  insurance  sector  not  only  to the multinational
companies, but also to the private companies.

	Sir, I now come to another important issue concerning the employees of
both LIC and GIC. The bank employees have a right  to  collective  bargaining,
but  it  is  surprising  to know that the employees of LIC and GIC do not have
that right. The wage revision is not done  by  having  negotiations  with  the
employees'  association of LIC and GIC. So, it hurts them very much. The wages
of the employees of LIC and GIC were revised as per the tripartite settlement.
When the bank employees have a right to  collective  bargaining,  why  do  the
employees  of  LIC  and  GIC not have that right? Therefore, I demand that the
right to collective bargaining which the employees of  LIC  and  GIC  used  to
enjoy earlier should be restored.

	In  my  opinion, there is no necessity for such a regulatory authority
in our country for the insurance sector. There is  no  need  to  open  up  our
insurance sector for multinational and private companies. But it is being done
under  pressure  from  the industrially developed countries, particularly from
the United States of America. There is great potential in  our  country.  They
want to grab our economy. They want to capture our economy.

14.04 hours (Mr. Deputy-Speaker in the Chair)

	Sir, our insurance coverage is much less in comparison to  our  G.D.P.
We also accept this fact. But we cannot consider it in isolation. We will have
to consider the percentage of people living below the poverty line.

	That is why, our insurance coverage is much less in comparison to  our
GDP.   But in spite of that, during these years, both these organisations have
performed efficiently and will be able to perform efficiently  if  support  is
given  and  if these two organisations are strengthened without opening up the
insurance sector.

	I oppose this, what  I  call,  obnoxious  Bill  because  there  is  no
necessity  for  such  a  Bill. The Minister of Finance told us in January 1996
that a Bill has to be passed in this House in order to give statutory  status.
In my opinion, there is no need for such a Bill. This Bill is being brought to
facilitate  the  opening  up  of  the  insurance  sector,  which is not in the
interest of our country. That is why, this Bill is anti-national, this Bill is
not in the interest of our country and in the interest of the  people  of  our
country.

	With these words, I oppose this Insurance Regulatory Authority Bill.



MR. DEPUTY-SPEAKER:  Shri Suresh Prabhu to speak now.

SHRI JASWANT SINGH (CHITTORGARH):  Sir, my name is also there.

SHRI SURESH PRABHU (RAJAPUR):  Sir, let Shri Jaswant Singh speak first.

SHRI JASWANT SINGH :Mr.  Deputy-Speaker, Sir, firstly, I  am  grateful  to  my
colleague,  Shri Suresh Prabhu, who should have so gracefully and so willingly
conceded the right to me to participate in this discussion, more  particularly
after his name had already been called.

	I had no intention of participating in this discussion.  If I am doing
so  nevertheless  it is because there has been some clouding of issues on some
aspects of the B.J.P's policy in this regard.  Therefore, I found it necessary
to very briefly make my position and my Party's position clear.  Before  doing
that,  I  think,  it  is  necessary  for  us  to  understand as to whether the
discussion on the Insurance Regulatory Authority Bill is  the  right  occasion
for it  or  not.   I do not know, but I would like to share with the House and
with the hon.  Minister what I think are the basics  of  insurance.    I  have
always held that banking is natural to India.  About banking, we have to learn
nothing from  anywhere  in  the  world.  But insurance has not been natural to
India.  How has insurance evolved?   I  think,  principally,  insurance  is  a
consequence  of  industrialisation  and  the  movement of rural societies from
rural to urban centres.

	In this regard, I have attempted to educate myself.  But I do not find
a cultural  or even a civilisational basis for insurance.  The reason was that
essentially what we aim to achieve through insurance was provided  by  society
or by  family.    With  the  assault  of industrialisation and the movement of
people from rural to urban societies, the need for insurance became not simply
a service but a business, in  which  sense,  insurance  is  relatively  a  new
phenomenon to India.

	Whatever we are attempting, it is a consequence.  And  it  is  a  well
enough  known  fact that so far as India is concerned, we have really not had,
in that sense, an  industrial  revolution,  therefore  we  have  not  had  the
consequences of  industrial  revolution  either.    That  is why, insurance is
really, as a service industry, an alien concept to India even as we attempt to
insure against death, injury, loss to individual and  damage  to  possessions.
If a sociological study is made of the spread of insurance in India, you would
find that  what  I  am  submitting  today  will stand full to scrutiny.  It is
really to guard against the demands and the travails of  an  industrial  urban
society  that  a  service  industry  called `insurance' appears as part of the
totality of service industry.

	Therefore, a question arises:  Is insurance a social service?  Yes, it
is a  social  service.    It is directly related to people before it spread to
various other activities and that is where it became business.

	Therefore, it is axiomatic that the larger the population,the  greater
the business.    Therefore,  again the greater the business, the more money in
it.  I think it is this, combined with  the  aspect  that  it  is  related  to
people, that it is a service, that we have to examine with care.

	The  third aspect of the totality of insurance industry is that if you
persuade an individual, an enterprise to insure either against loss  or  death
or whatever, you do it for a payment and that payment, after a period of time,
if that  does  not  happen, is returned to the insured.  In that sense it is a
long-term money and, if it is a long-term money, it is related to the  savings
of the nation.

	There are  then  two aspects here.  One, that it is a long-term money.
Second, that it is related to savings.  Therefore,  the  utilisation  of  this
money, which is long-term is related to people's savings, individual's savings
--  I  am not talking about corporate insurance of machinery,cars and scooters
into which  it  has  spread  now.    That  is  why,  I  relate  insurance   to
infrastructure.   Unless  a  nation  has high savings rate, individual savings
rate as also public saving rate, which is really Government savings rate,  you
cannot develop either insurance infrastructure or financial infrastructure.

	Let  me make it clear that as BJP we are opposed to monopoly either of
the State or of an individual.  We do not accept that the monopoly of State is
equal to efficiency.  There is a second point which I must make

clear:  that if the entire insurance industry relates to people and, if it  is
a  service  which  is  being  provided  to the people,then their interests are
paramount.  I would be pretending if I attempt to put across to you  that  the
scale of satisfaction about nationalised life in is of ansindustry, whether it
be in one form or another, is a scale that is of an ascendeding variety.

	Because  there  is a monopoly, a number of subscribers to this service
find great difficulty in the service itself that is provided .We believe  that
this  service  will  improve  if  you  provide  competition  to  it  and if an
alternative service is available to the investor.  A person is  investing  his
savings.  What he seeks through insurance is security whether of his health or
of his house or of his own person or of his life or of his family or indeed of
his corporate  activity.  Thereafter, if corporations compete and if the money
that is drawn from the people who are seeking insurance falls by way of premia
payment and the efficiency of the service rises, I personally do not find  any
difficulty with  that.    That  is  why,  I  feel  that  I  must  state  quite
unambiguously where the BJP stands.

	We believe that the Insurance sector must be opened out.  Secondly, we
are clear in our minds that when it is opened out, it must be  opened  out  to
Indian entrepreneurs.   Thirdly, we are equally clear in our minds that if you
permit the opening out of this sector to foreign  corporations,  you  will  be
doing two   very  great  wrongs.    One,  you  will  permit  the  utilisation,
essentially of Indian money by foriegners.   The  gestation  period  is  long.
Therefore, within eight or ten years, a new Insurance Company is not likely to
make money.    But  they  are ready to invest because the monies that they are
drawing are individual's, corporations' - essentially Indian money.    If  you
permit  that  Indian  money  to  be  utilised  by  way of insurance by foreign
corporations, you are likely to do two wrongs.  One, you  are  permitting  the
Indian  wealth,  by way of savings, even if it is in terms of dividends, to be
siphoned out, out of the country and secound, what you will do is  to  prevent
the  growth  of  an  indigenous,  vibrant,  dynamic,  healthy Indian Insurance
industry which can stand up on its own, not just simply in India, against  the
monopolies of  others,  monopoly  of  the State but on a global basis.  If you
permit large international corporation to enter the insurance field  in  India
now  -  I  do believe that the BJP is explicit on this - if you permit that to
happen, you will almost for ever be preventing the  growth  of  an  indigenous
Indian Insurance  industry.    These  are the three parameters within which we
operate.

	So  far  as  the  Bill  proper,  that  is,  the  Insurance  Regulatory
Authority,  is concerned, I do not wish to cite the Malhotra Committee Report.
That is everyone's knowledge.  I do not also wish to quote from the Report  of
the Standing  Committee on Finance of this Parliament.  The Standing Committee
which comprises Members of all parties in Parliament has deliberated  on  this
issue.  It has sought evidence.  A number of organisations had appeared before
the Committee  and  given  their  views.    Having  examined  all those views,
thereafter, the Standing Committee  has  recommended  that  a  body  like  the
Insurance Regulatory Authority (IRA) ought to be established.

	The hon.  the Finance Minister and also the previous speaker too  said
one thing.  As is mandatory, the Bill has the Statement of Objects and Reasons
which goes  briefly  into the history of the evolution of the IRA.  Here, I do
not refer to the Irish Republican Army!  What I am referring to  here  is  the
Insurance  Regulatory  Authority...(Interruptions) It is really a successor to
an earlier body which was existing there.  There are some observations  as  to
whether that body really had a role to play after nationalisation etc.

	Then there  are  duties,  powers  and  functions  of  the IRA.  Let me
briefly cover these duties because this is essentially what we are  seized  of
today and  not  so  much with the philosophy of insurance.  I did, however, go
into it because I found that necessary.  We do not have  orderly  exercise  of
powers  and  functions of the previous incarnation which was the Controller of
Insurance on the aspect of `to regulate and promote'.  You have to protect the
interests of the policy-holders to promote efficiency, to promote and regulate
professional  organisations,  to  levy  fee  and  other  charges,   call   for
information  to control regulation and to prescribe the form etc., to regulate
investment, to regulate maintenance  of  margin  of  solvency,  to  adjudicate
disputes, to exercise such other powers as the Union Government may decide.

	I do want to take a minute or two here on the aspect  of  autonomy.  I
think,  in  the Statement of Objects and Reasons, the hon. Minister has stated
that he envisages the Insurance Regulatory Authority to be somewhat similar to
the recently constituted SEBI. If I am not mistaken, that  is  also  contained
here.  

	I do wish to take a minute or two on this whole question of Government
autonomy and institutions.  Since 1991, what we have really attempted is to do
only the peripherals as far as certain essential aspects of economic reform is
concerned.   The  principal  reform  was  in  two areas which has not yet been
addressed.  I do believe that the Government had to have a totally transformed
understanding about its own role.  The Government had to  move  from  being  a
controlling,  regulating  and  a  capping  authority  to  a  promoting  and an
encouraging authority.  That is not taking place.

	The second thing that had to happen was for the Government, along with
introducing a reform package, to introduce a  reform  of  the  bureaucracy  as
well.  That  has  been attempted.  In the light of these broad observations, I
would like to make my  next  observation  relating  to  autonomy  and  to  the
suggestion  that the Insurance Regulatory Authority be somewhat like the SEBI.
It will be an autonomous body.  You have spelt out  how  it  is  going  to  be
filled up etc.  I do believe that if there is a singular failure which we as a
nation  demonstrate,  we do legislate for institutions but we do not recognise
that institutions are not created simply by legislating for  that.    Yet,  we
will.   The Bill will, perhaps, get passed depending on the will of the House.
The Bill having got passed will effectively  and  truly,  an  autonomous  body
called the  Insurance  Regulatory  Authority  come  into existence?  I have my
serious doubts about that it because the interfering nature of Government  has
not changed.  Why do I speak about it?  I speak of autonomy because we have to
regulate to  prevent  the  misuse,  as  has been witnessed.  Misuse of banking
sector, misuse of securities sector etc., brings a very bad name to all of us.
This House and the previous Parliament has been  seized  of  this.    We  have
recently heard of yet another example of a particular businessman running away
with people's money under the regulatory control of SEBI.




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