NEW DELHI: Sovereign guarantee for all policies issued by Life Insurance Corporation (LIC) will continue, a government official said, allaying fears of millions of clients of the country's largest life insurer.
The government has decided to drop a clause from the Life Insurance Corporation (Amendment) Bill 2009 that suggested limits on the sovereign guarantee available to the country's largest life insurer.
"It has been decided to continue with government guarantee to LIC," the official told ET.
The government has also decided to retain a clause that allows the insurer to regulate the terms and conditions of its agents and the recruitment procedure for employees and agents. The provision gives the insurer powers to decide on the commission benefits of over 14 lakh agents.
The finance ministry has circulated a draft cabinet note on the changes to be made to the legislation before it is taken up for approval in the monsoon session of Parliament.
LIC, which is governed by a 50-year-old Act, has government backing for all its policies. The public-sector behemoth had 65% market share in first-year premium and 70.8 % share in total policies in 2010. The insurer sold over 37 million policies in the last fiscal.
The relaxation in sovereign backing comes despite the government tightening conditions under which such guarantee can be made available.
The Standing Committee on Finance had strongly opposed the provision in the Bill that empowered the government to limit the extent of sovereign guarantee.
The amendment Bill was reintroduced by the finance minister after it lapsed following the dissolution of the previous Lok Sabha.
The dropping of the clause, seen smoothening the passage the Bill in Parliament, comes amid stiff opposition from private-sector players. State backing for LIC has also been criticised by the Insurance Regulator Development Authority for not allowing a level playing field.
In the Union Budget for 2011-12, the government disclosed for the first time the total financial guarantees given, in order to present a clearer picture of its financial position.
The clause allowing the insurer to frame rules for its agents and the method and decide on the recruitment process of staff had not found favour with the parliamentary panel and insurance agents.
However, the official said, "The corporation should have powers to decide about the welfare of its agents and employees."
A petition was filed in the Supreme Court challenging the bill but was rejected by the court.
The bill seeks to raise the capital base of the state-owned insurer to 100 crore from 5 crore, bringing it on a par with private insurers, both in life and non-life segments, which are required to have a minimum capital base of 100 crore as per IRDA norms.
The bill also seeks to allow LIC to allocate 90% or more such surplus - excess of assets over liabilities - for life insurance policy-holders and the rest to a separate account maintained by LIC.
Soruce (economictimes.indiatimes.com http://articles.economictimes.indiatimes.com/2011-07-27/news/29820591_1_par-with-private-insurers-sovereign-guarantee-policies)