The Hindu : Andhra Pradesh News : Insurance union protests hike in foreign equity

Online edition of India's National Newspaper
Saturday, Jul 10, 2004

Andhra Pradesh

Andhra Pradesh

Insurance union protests hike in foreign equity

By Our Staff Reporter

VIJAYAWADA, JULY 9. The All India Insurance Employees' Association (AIIEA) has objected to the enhancement of foreign equity in insurance sector in the budget. This would enable private companies to "manipulate and exploit" the market, according to the general secretary of AIIEA, K. Venugopal. The FDI cap in insurance sector was increased from 26 per cent to 49 per cent.

Addressing a press conference here on Friday, Mr. Venugopal said if the Indian partners went public and off-loaded shares, the foreign partner would become the majority shareholder and gain effective control over the company. It would lead to foreign capital gaining control over domestic savings, he said.

He said the AIIEA was convinced that enhancing foreign equity in insurance would weaken the public sector and in the long run injure the economy itself. The private insurance companies were interested in an increase of FDI because their Fitch ratings were dropping. Fitch is an organisation which certifies the financial soundness and growth of companies, he explained.

Mr. Venugopal said the association was also against the budget proposal to levy 10 per cent service tax on life insurance premium. He said, in India, life insurance was basically risk coverage for breadwinners and hence, a social necessity. If service tax was levied on the premium, the policy-holder would have to pay more for risk coverage.

He also argued that the existing rules on solvency margins were unfair to Life Insurance Corporation (LIC) of India, which had a track record of financial soundness and management. The IRDA was insisting that the solvency margin should be increased to 150 per cent from the existing 100 per cent, citing Europe's example. Then, European standards should be applied to evaluate the assets of LIC too, he said. The IRDA had asked LIC to set aside Rs. 5,000 crores as solvency margin, Mr. Venugopal said. "This will give the private companies an edge over LIC. If Rs. 5,000 crores of its money was blocked in this manner, the bonus it can pay to its policyholders will be less,'' Mr. Venugopal explained.

He said the working committee of the association would meet at Pune on September 8 to chalk out an agitation programme pressing for its demands.

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