New Delhi: Insurance regulator has recommended to the Government to create level-playing field in the life insurance sector by amending the LIC Act to prohibit the state-run insurer from using policy holders fund in setting up subsidiaries in line with private players.
Unlike provisions for private players in the insurance sector, the LIC Act provides for setting up subsidiaries through policy holders fund, IRDA Chairman C S Rao said.
"Insurance companies are not expected to set up subsidiaries from policy holders fund, but LIC Act provides for subsidiaries. That is how, they have subsidiaries," he explained.
LIC has subsidiaries like LIC Housing and LIC Mutual Fund.
"These are the things, which are required to be changed," Rao said.
When contacted, LIC Chairman T S Vijayan refused to comment on the issue.
LIC has just Rs five crore of paid up capital, which is also required to be enlarged to Rs 100 crore to bring the corporation on par with private players.
Besides, LIC does not need to seek the approval of IRDA for opening up offices, Rao said.
"Any insurance company has to take the permission of the authority to open offices, but LIC is exempted from that," he said adding the IRDA wants the government to bring the largest life insurer in alignment with other insurance companies.
LIC could set up offices even by the consent of regional officers or zonal officers, he added.
The LIC Act also does not provide for setting up separate reserves as a cushion against any default, Rao said.
LIC does not have any such reserves since 95 per cent of the surplus earned from policy holders money go to them and five per cent to the Government as dividend.
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LIC is meeting such a mandatory requirement, technically called solvency margin, from its current assets.
The corporation has solvency margin of 130 per cent and would inject Rs 7,000 crore more to take it to 150 per cent as is required by IRDA within two years, corporation chairman T S Vijyan said.
He, however, did not disclose the sources of funds to be tapped by merely saying LIC's consultants has given some options in this regard.
IRDA has also recommended to the Centre that the government guarantee to LIC policies should be done away with to create level playing field with private insurers.
This is the major provision in the LIC Act that comes in the way of level playing field in the insurance sector, Rao said.
Vijyan, however, did not believe that the government guarantee creates any favourable situation for the largest life insurer, saying the corporation has never invoked the guarantee in the last 50 years.
However, the LIC Chairman admitted that in terms of marketing the provision did make a difference in the consumers mind in support of LIC.
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