Fighting shy of competition

AS PARLIAMENT starts considering the bill on insurance, protest grows louder. This emanates mostly from the employees of the LIC of India and other nationalised insurance companies. The leftists, of course, are against it and so are their sympathisers. The mandate given to the BJP was to run a caring State which would give the voter the basic necessities rather than give the foreign insurance companies an invitation to operate, it is said.

It is true that every voter who voted for the BJP wanted the party to give priority for providing basic necessities. BJP is doing just that. In order to provide the basic necessities and infrastructure, one requires massive investment and that can be mopped up if foreign insurance companies are allowed in. Besides, the BJP did try to introduce the Bill even in its first innings making the intention clear and it never said anything to the contrary in the NDA manifesto. Introduction of this Bill was a clear agenda even during their election speeches. Therefore, if at all the mandate is to be interpreted, it is clearly for the introduction and passing of the Bill.

Subtle propaganda has managed to obfuscate the objectives of the Bill as the phrase ``privatising life insurance'' is often used to give the impression to the people that the LIC is going to be dismantled and the employees would be in trouble. Nothing is farther from the truth.

The Bill only aims to permit private players in the field of the life insurance (small case is used deliberately to distinguish it from the Life Insurance Corporation of India.) Till now only the Life Insurance Corporation of India as a monopoly can insure the life of Indians.

By the Bill, foreign insurance companies are also permitted, along with the Indian private companies to open private insurance companies provided their equity participation is limited to 40 per cent. This means there will be several life insurance companies, some Indian and some with foreign equity participation, besides the LIC of India. The LIC will not be dismantled nor its employees thrown out.

In the past four decades, the LIC has been obsessed with only one thing - making enormous profits to the exclusion of all other objectives and miserably failed to be the essential service it was meant to be and has been running it only as a business proposition.

Its own employees' union often provides figures of its profit. They started with a capital given by the government of Rs. 5 crore in 1956. There has been no infusion of capital since then. Today, the LIC has an investible surplus of Rs. 105 lakh crores and an asset base of Rs. 1.32 lakh crores. Annually it pays a tax of nearly Rs. 1,000 crores after providing for all the reserves and yet the LIC has been able to reach only 7 per cent of the population. If this is not profit mongering, what else is it?

This raises two questions. One, why should LIC make such a profit? LIC should not run into loss. But why such profits? The minimum premium for a minimum policy under any category is Rs. 150 a month or Rs. 800 per annum. What prevents them from making the premiums cheaper and be of real service?

The next question is how did the LIC make such profits? First through a high premium totally unrelated to the spread of risk. Since there is no competition, there is nothing to compare or choose and there is no bench-marking done. If one compares the daily wage of eight hours that an unskilled worker gets in the U.K. or the U.S. with what his counterpart gets in India and compares the life insurance premium for the minimum amount or for the similar amounts in similar conditions in India and in other countries, it is much cheaper in the developed countries. Although the unionists are claiming transparency in their operations, the reality is very opaque. The figures of lapsed policies as a proportion to the continued policies will show that the LIC makes a neat packet on this count alone. It is anybody's guesstimate since no figures are available.

Any profit-mongering company will prefer the free flow of premiums without any commitment, to acceptance of premiums with the commitment to pay something on maturity or to the widow or nominee of the premium-payer. Policies lapse or are allowed to lapse on two counts. One, owing to the ignorance of the premium payer in this land of 50 per cent literacy (in the 1950 and 1960s, the percentage was 70 per cent) owing to absence of service and owing to the inability of the premium payer to sustain the high premium

Secondly, whenever the employees in the salary saving scheme get transferred, the transfer of the premium paid from the old branch of the LIC to the new branch is so inefficient that many policies lapse.

Thirdly, to keep the insured and his nominee further safely away from making any claim in the event of death, the language has been kept so dense and archaic that it is impossible to understand the terms and conditions. For example, the first sentence of the terms and conditions contains 157 words! All this is in English while the agents appointed are semi-literate even in their mother tongue. None of them can read aloud the terms and conditions in a sensible way leave alone understanding and explaining them to the illiterate premium-payer.

Fourthly, outright denial of claims for no obvious reasons or plainly on false grounds fully exploiting the illiteracy and ignorance of the nominee of the premium-payer. This statement certainly requires substantiation.

A true picture of the functioning and performance of the LIC will be known when the figures on how many policies are given each year, how many of them are continued over the years, and of them, how many premium-payers are paid on maturity, and of the policies continued, how many claims are made over the years and how many policies lapse because none makes any claim or continues to pay the premium. And if and when claims are made, how many have been denied outright as nothing is payable because of this and that and in how many cases an ex-gratia amount is paid for about half or quarter of the sum assured and the cases `settled'. Many a villager has been flattered by the payment of an ex-gratia amount as the LIC is not a charitable organisation and no criterion has been laid down for such payments. Still such payments are offered and paid regularly. Only the level of ignorance and gullibility are the guiding factors. My knowledge is first hand as I file cases on behalf of these villagers in consumer forum and commission and get them the sum assured with interest.

Whenever the LIC denies claims it quots the decisions of the Central Review Committee and they claim in seminars and District Fora, that a retired judge of High Court heads these committees. Yet in none of the cases, they have produced any proceedings of this High Court judge or any decision of him in writing. And in none of the cases, the claimant has been summoned and enquired. Always the decision of the Zonal Review committee or Central Review committee is conveyed by the respective Senior Divisional Manager to the claimant and there is no direct communication. While they proudly claim that they give utmost consideration to the claims of the nominees before they are denied, they are not able to explain how and why the LIC of India remains the single largest-sued or most sued against institution in the District Consumer Fora, the State Consumer Commission and the National Consumer Commission.

If one were to make a study of the defences that the LIC makes before these consumer fora one would come across fascinating creativity. The LIC said before the Guwahati State Consumer Dispute Redressal Commission, that the nominee was not a consumer and so it could not pay nor did the commission have jurisdiction to try the case! When the premium-payer is dead, who else could appear before the Consumer Commission except the nominee! Perhaps the LIC wanted the ghost to appear! Before the West Bengal State Consumer Commission, the LIC said after 13 years that it had lost the files and if the nominee could produce them it would pay. The LIC was ordered to pay in both the cases with interest.

In another case the consumer handled the LIC denied the claim for a widow, nominee in accident benefit policy citing the reason that the premium-payer had a heart problem two years earlier and had suppressed the information at the time of taking the policy. How did the LIC come to know of that? The LIC had gone to the office of the deceased, stayed there for two days, dug out all his leave letters and discovered one wherein he had said that he had chest pain and produced that letter with the certificate to deny the claim. Who would have thought they would go to that extent? The forum went to the same doctor who had given the certificate and found out that the chest pain he had at that time was muscular pain and had nothing to do with his heart and the LIC had to pay the amount.

In a case, the consumer forum won the LIC said that it had indisputable proof to show that the woman who had died in a fire accident was of unsound mind and the claim of her father/nominee had to be rejected. When we produced declarations from her parents that their daughter was of sound mind till her death and she had worked in a Government office till her last day and asked the LIC to produce proof, however indisputable it could be, it offered to pay Rs. 20,000 as ex-gratia against Rs. 50,000 due. The forum filed a case in the District unit. As the LIC could not produce any proof to show that the woman was of unsound mind it was asked to pay Rs. 50,000 with interest and compensation.

In a case decided recently, the LIC refused to pay anything to the nominee/father of the deceased claiming the nominee had revived the policy on the same day after the death of the premium-payer and so the policy was not in force while in fact the premium-payer had died a week after the policy was revived after all the formalities were completed. Although as usual the LIC claimed indisputable proof, it could not produce anything before the District Forum and the nominee was awarded Rs. 2 lakhs (the sum assured) with 12 per cent interest besides a compensation of Rs. 5000 and Rs. 1000 as costs. The nominee, an illiterate villager, was plain lucky to get in touch with the forum.

Every District Consumer Forum has innumerable cases on these lines. It appears as if that the LIC has decided to pay only if the District Forum or a State Consumer Commission or National Commission orders it to pay!

Until the Supreme court held recently that the policy-holder was not responsible if the employer failed to pay the premium deducted in time, the LIC was holding the policy-holder responsible and was denying the claim in such cases for over 40 years.

What will happen if the bill is passed and if more private players enter the arena? First, the premium will be cheaper as with one third of the premium, cost profits can be reduced only by one-third or so and it will still be attractive. Secondly information on the policies, claims and denials will not be on premium. Greater transparency will be there in all the companies. Competition will improve the service and protect the consumers' interest better. Although anti-Bill lobby has questioned this, experience has proved it to be true. Take the case of scooters in India. There were only two scooter companies. One was Scooters India, a Government owned enterprise which was later wound up and another was the company that produced Vespa. At least fifty persons would have died in a year when the handlebar of the vehicle locked itself while riding. Since there was no strong consumer movement nor consumer courts, nothing could be done and the company went scot-free. It was forced to provide a safe locking design only when they faced the threat of competition. Many of us bought our scooters believing a 150 CC was more efficient or powerful or better than a 100CC scooter because what mattered was the size of the engine (cubic centimetres). It required a Japanese company to tell us what mattered was not the CC but the bhp of a scooter. That is, how much of horsepower is generated in a drop of petrol, which is, called bhp (break horsepower). Hence we find a 100 CC Japanese scooter whose bhp is 7.7 more powerful, efficient and better than the old 150 CC scooters whose bhp was only 5.5! Information is power. Information flow will be there in a situation of severe competition. More information means consumers can make an informed choice. The threat of loss of customers which poor service will result in will ensure courteous prompt service. The degeneration of LIC is precisely due to the absence of such a threat.

It is very clear that the LIC has not been meeting its customer obligations leave alone its social obligations. All the money said to have been contributed by the LIC for welfare or development schemes are in fact interest-earning investments. The true picture of the LIC of India will emerge only when an independent social audit is ordered and the figures asked for earlier are published in an easy-to-access manner.

The foreign insurance companies have a healthy way of calculating the sum to be paid on maturity taking into account the erosion of money value unlike the LIC, which is a drain on our savings. If the tax-exemption protection is removed, the empire will crumble.

The anti-Bill lobby is never tired of saying that the LIC is efficient and the customer service is not all that bad and the LIC is profit-making. The last is very true. But then if the service is good, and is so efficient and can fully meet social obligations, it should continue to do well in the midst of competition.. Why should it then fight shy of competition? When the Bill becomes an Act, customers will have a wide choice. The foreign players are prepared to wait long-term for their profits. Govt./industry will have more investment from the investible surplus of these companies.

S. PUSHPAVANAM

Secretary, Consumer Protection Council,

Tamil Nadu, Tiruchi

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