Opinions

ET View: List Life Insurance Corporation swiftly


Listing state owned Life Insurance Corporation, the 63-year-old big daddy of all insurers, is a good idea and must be done swiftly. It will unlock shareholder value, help business grow, make accounting transparent and raise corporate governance. LIC‘s huge embedded value will also help put government finances in a better shape and create an actual level playing field in insurance.

“The Life Insurance Corporation has been created as a monolith. If you (LIC) were the company listed on the stock exchange, perhaps you would be the most valued company,” finance minister Arun Jaitley had said in 2016. This holds true even today.

The Centre should amend the LIC Act to pave the way for listing. Of course, the government needs to take the Opposition on board, given that it does not have the numbers in the Rajya Sabha.

The Corporation has assets under management of about Rs 31 lakh crore, and accounts for over two-thirds of the new business premium. Almost all of its money comes from the premium paid by policyholders who must be offered competitive returns.

For long, LIC used to make do with small change — Rs 5 crore — for its capital. Whereas private insurers are required to have a minimum of Rs 100 crore as capital, and to keep raising it as their business volumes go up. The stunted capital was due to the law under which LIC was created. Sensibly, it was amended to raise LIC’s capital to Rs 100 crore.

Successive governments have used LIC to supposedly boost their divestment programmes. In the past, questions were also raised on the kind of decision making at LIC, making the case for governance reforms compelling. Also, the Corporation has become the off-balance sheet war-chest of the government. This must change.

Earlier, the Financial Sector Legislative Reforms Committee had advised the then UPA government to amend the laws that confer special privileges to State-owned companies and a review of the LIC Act to make the corporation a company under the Companies Act. But the recommendations are yet to be acted upon.

Certainly, LIC must face the same regulatory discipline as other insurance companies, achieve the same levels of reporting transparency and focus mainly on policyholders’ long-term returns. Listing will help achieve all these goals.





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