While the ostensible reason for nationalisation and the obliteration of all competition was unfair practices of the companies and the protection of policyholders, neither found a mention in the new law from which LIC derives its authority, powers and products: a legislative vacuum.
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“The nationalisation of life insurance is an important step in our march towards a socialist society,” Prime Minister Jawaharlal Nehru announced in Parliament. <1> “Its objective will be to serve the individual as well as the State.” Six decades ago, the answer to every policy problem, in the case of life insurance unfair trade practices, was nationalisation. And thus — first through an Ordinance of 19 January 1956 and then by a law on 19 June 1956, the Life Insurance Corporation (LIC) Act <2> — the government nationalised 154 Indian, 16 non-Indian insurers and 75 provident societies into a single entity, <3> LIC, created on 1 September 1956. While the ostensible reason for nationalisation and the obliteration of all competition was unfair practices of the companies <4> and the protection of policyholders, <5> neither found a mention in the new law from which LIC derives its authority, powers and products: a legislative vacuum. <6> However, this Act was completely aligned with the ideological drift of the government and Parliament, and followed the Second Five Year Plan and the industrial policy resolution of 1956, <7> both of which codified the Licence Raj and looked at all private enterprises with suspicion. Effectively, LIC became a monopoly as far as offering insurance and low-return savings products to consumers was concerned. As a government run Corporation, LIC has played — and is expected to continue to play — a prominent role in meeting social-sector obligations of the government. Complicating the equation further is Section 37 under Chapter VII of the LIC Act that ensures, by law, a sovereign guarantee on all “sums assured by all policies issued by the Corporation, including any bonuses.” This not only gives an unfair advantage to LIC over private players but legitimises inefficient decisions taken by employees and agents, both of which, through their respective associations, objected to the removal or reduction of the guarantee when a Bill amending the Act was floated in 2009. As a result, Parliament sees LIC as yet another tool to pursue its social objectives at the cost of consumers. The only way to resolve this conflict would be to privatise LIC completely. However, since the politics of India still has one leg iron cast in socialism, this is unlikely in the foreseeable future.
<1> R.M. Ray, “Life Insurance in India: Perspectives in Social Security,” Indian Institute of Public Administration, 1982, 18, accessed 3 Januar y 2018.
<2> The Life Insurance Corporation Act, 1956, India Code, 18 June 1956, accessed 3 January 2018.
<3> Arjun Bhattacharya & O’Neil Rane, “Nationalisation of Insurance in India,” Centre for Civil Society, 380, accessed 3 January 2018, Chapter 14: Industrial Policy Resolution, 1956
<4> Ibid., 378.
<5> Kamal Nayan Kabra, “Nationalisation of Life Insurance in India,” Economic and Political Weekly 21, no. 47 (22 November 1986): 2045–2053, accessed 3 January 2018.
<6> The Life Insurance Corporation (Amendment) Act, 2011, Gazette of India, 12 January 2012, accessed 3 January 2018.
<7> Chapter 14: Industrial Policy Resolution.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...
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