On July 24, 2014, the newly elected Modi-led NDA government approved the Insurance Laws (Amendment) Bill, 2008 after making a few changes to the draft prepared by the earlier UPA government and introduced it in Rajya Sabha. The Bill proposes to raise foreign direct investment (FDI) limit from 26 to 49 percent. The Draft Bill has been sent to the Select Committee of the Rajya Sabha. It is expected that the Select Committee will return the Bill to table in the Rajya Sabha after incorporating some amendments proposed by the Congress. It must be noted that the two main parties of the ruling class, BJP and Congress, are fully in favour of further privatising and opening up the Insurance Sector to foreign capital. It is the working class which has been vigorously opposing this course.
When the Insurance Amendment Bill is passed, then the foreign direct investment (FDI) in the pension funds will also get raised to 49 percent. This is because the Pension Fund Regulatory Development Bill links the FDI limit in the pension sector to the insurance sector.
The main aim of the privatisation of insurance and pension sector is to provide access to Indian and foreign bourgeoisie to the huge savings of people accumulated in the form of insurance funds and pension funds.
In the capitalist system in place in our country, the working class and toiling peasantry, as well as the mass of urban petty bourgeoisie are forced to fend for themselves, The state does not guarantee the majority of working people and their families any security, in case of death, accidents, ill health, loss of property, a failed crop, natural disasters, etc. Instead people are forced to put aside a portion of their hard earned savings in different forms of insurance funds to cover up partially for such contingencies. The total premium, i.e, savings of people collected by all the insurance companies together was as much as Rs.3,50,000 cr.
An insurance company, after meeting its expenses and claims, invests the premium amount in government and company bonds and shares. A part of the income from investments is returned back to people as income on the premium paid by them and the rest is used to earn profit for insurance companies. During 2012-13, the total income on various investments made by all the life insurance companies was as much as Rs.1,47,000 crore. Moreover, over the years massive funds have been accumulated from the earning and savings of working people. Consequently, the insurance sector of the country is largest source of finance capital after banks .As on 31 Mar 2013, the total accumulated funds of Indian insurance companies was as much as Rs.18,68,000 cr.
The big bourgeoisie wants to control this massive capital, as well as expand it. Foreign insurance giants have the same interests. Increasing the FDI limit in insurance is aimed at joint exploitation of the insecurities of the people by the parasites of finance capital.
The Indian and foreign capitalists in the insurance sector are greedily eyeing the Indian insurance market which is growing faster than most imperialist country markets. In 2013, the growth in total premium (both life and non-life segments) collected was 10.8 percent, as compared to -1.1 percent in the US.
In our country, one of the main expenses of families is on health care, which is very expensive and mostly in private hands. In the past two decades, the collapse of whatever public health care that existed earlier, has been accompanied by the mushrooming of private multi speciality hospitals. Private hospitals and insurance companies are already colluding to ensure that every patient is forced to have health insurance to be able to avail their prohibitively expensive health care services. The Indian and foreign insurance companies see in this mushrooming health care business, a source of maximum profits. In coming years, health insurance will become another big area of profit for insurance companies.
The Insurance Amendment Bill allows investments by foreign institutional investors (FIIs) in an insurance company within the 49 percent limit for foreign capitalists. It is well-known that the investments by FIIs are generally short-term and made for speculative gains only. They invest in the shares of the companies likely to make maximum profits, which means they will invest in those insurance companies that are likely to take maximum risks for earning highest possible profits. Such speculative capital flows quickly move out to whichever segment and company offers higher returns. Speculative investments of FIIs thus put savings of people in an insurance company to very high risk, sometimes to a complete loss.
The insurance sector was thrown open to private sector in 2000 and foreign capitalists were allowed to own up to 26 percent of an insurance company. Currently, 52 companies are operating in the life and non-life segments of the insurance market, out of which only 5 companies are state-owned. Most of the biggest insurance companies such as Allianz, AIG, Standard Life, Prudential, Lombard and Tokio have entered India through joint ventures with the Indian big capitalists like Tata, Birla, Ambani, Bajaj, Mahindra, etc.
A number of insurance companies in India are subsidiaries of big finance capital institutions such as ICICI, HDFC, State Bank of India, Canara Bank, IDBI Bank, Punjab National bank; a financial crisis in an insurance company can transmit systemic crisis widely, impairing the parent banks as well as the banking system and thus put the savings of crores of Indian in danger. In their pursuit of profit at all cost, private insurance companies have already created one crisis during this short period of liberalization. (See Box)
The private insurance firms selling these products made huge profits by charging high surrender fees on investors who could not continue with such loss-making policies. The lapsed policies also generated huge profits for the insurers. According to a report by Goldman Sachs, one of the biggest multi-national finance capital institutions, six private insurance companies (which included Bajaj Allianz Life, HDFC Life and ICICI Pru Life) made a profit of Rs.1553 cr. (39 percent) from lapsed ULIP policies out of the total profit after tax of Rs.3952 cr. during the fiscal year 2011- 2012.
Insurance Companies and Agents made millions while people lost their savings
In the first decade of privatization, a very large sales force of insurance agents who earned up to 40% of the first-year premium as commission, sold life insurance products that were built like investor traps. The Indian insurance sector witnessed aggressive selling of market-linked insurance product, Unit Linked Insurance Plan (ULIP) on the promise of high returns. The ULIP is considered to be more risky than traditional life insurance plans because of its market-linked returns. The private insurance companies were the dominant players in the ULIPs. In 2009-10, 76 percent of their total business was linked to speculative markets, as compared to 17 percent of LIC.
Insurance agents who got huge commissions in the first year for selling the ULIP, did not tell the buyers that they would have to keep funding their policies for nearly 7-8 years before they get any benefit from the Policy, and that too is conditional on the market doing well. What the buyers were told was that the policy would double in value in just 3 years. To the contrary, the policy holders saw no benefit even after the third premium, because all their money got deducted in costs. For a large number of people, who were expecting to gain in the short term, the investment of their savings in ULIPs suffered huge losses. It is estimated that about Rs.150,000 cr. were lost by people owing to aggressive selling of ULIPs by private insurance companies during the 2004-12 period.
The raising of cap in FDI in insurance and consequently in pension sectors is a part of the overall policy of globalization through liberalization and privatization, pursued actively over last two decades. It is a course through which the biggest capitalists, Indian and foreign, want to rake in maximum profits by playing on the insecurities of our people which are a direct fall out of the capitalist system.
For the working people, the insurance sector reform means further risking their future. They have nothing to gain. Their hard earned savings will be subject to risks; and if the risks go bad, they will have to end up bearing the losses. Privatisation of the insurance sector, and its further opening up to foreign insurance companies, is thoroughly anti people. Working class and toiling masses must oppose the insurance sector privatisation.
It is completely unacceptable that the state declare that it has no responsibility to taking care of the people in their old age, or when they are victims of ill health or of any natural calamity. The growth of the insurance sector reveals the utter parasitism of the capitalist system, which is trying to make maximum profits by feeding on fear and insecurity.
Today, the economy is capital centric. That is, everything is dictated by the greed of the Indian and foreign capitalists to increase their capital at the fastest possible rate, through the exploitation of the working class and toiling masses. In place of a capital centric economy, we need to put into place a human centric economy in which the fulfilling the growing needs of the toiling masses will be the overriding aim.
The working class and peasantry must fight for replacing the present capitalist system with the socialist system in which the state fulfils its responsibility to ensure security and prosperity for all members of society. In such a society, no individual or family will be forced to fend for themselves in the face of an unexpected calamity. All working people will be guaranteed free health care, and pension after retirement. A portion of the social surplus created by the labour of the working class and toiling masses would be kept aside to provide relief and rehabilitation in the case of natural calamities.