Restructure LIC’s biz, divest other PSU insurers: IIM-K report | Kozhikode News – The Times of India
Kozhikode: A recent report from the Indian Institute of Management-Kozhikode (IIM-K) has made significant recommendations regarding the restructuring of the Life Insurance Corporation of India (LIC) and the divestment of public sector general insurance companies. This report was submitted to the Insurance Regulatory and Development Authority of India (IRDAI), the general and life insurance councils, and the central government.
Key Recommendations of the Report
The report, prepared by a team of experts including Debashis Chatterjee, Mridul Saggar, Rudra Sensarma, and Shubhasis Dey, emerged from discussions held on August 23-24, 2024. The core recommendations include:
- Divestment of public sector general insurance companies.
- Restructuring of LIC through splitting, divestment, or unbundling its business.
- Inclusion of provisions in the upcoming Union budget to either divest state ownership or recapitalize key insurers like National Insurance Company, Oriental Insurance Company, and United India Insurance, which are currently facing negative insolvency ratios.
Vision for Insurance in India
The report articulates a vision of “Insurance for All by 2047,” emphasizing that this goal can only be achieved if it is treated as a national mission rather than a mere market-driven initiative. The authors argue that:
- Regulatory clarity is essential for progress.
- Technological advancements must be leveraged to enhance service delivery.
- Capital deepening is necessary to support growth.
- Building institutional trust is crucial for the sector’s development.
Current State of the Insurance Sector
Despite being the world’s fourth-largest economy, India’s insurance penetration remains low, at approximately 3.7% of GDP. The report highlights several key issues:
- Significant gaps exist in health, property, catastrophe, and small-ticket non-life coverage.
- India’s insurance density stands at $95, indicating a lag compared to its peers, which reflects both low per capita GDP and considerable potential for growth.
Affordability as a Key Constraint
The report identifies affordability as the primary constraint hindering the expansion of insurance coverage in India. To address this, it recommends:
- Creation of low-cost basic insurance products that allow for daily or weekly micro-payments, particularly targeting informal workers.
Call for Sector Restructuring
In addition to the above recommendations, the report calls for a massive restructuring of India’s insurance sector. This can be achieved through:
- Mergers and acquisitions to harness the potential of creative destruction.
- Adoption of digital technologies, artificial intelligence, machine learning, and deep learning models to improve operational efficiency.
Next Steps for Implementation
The report suggests that the government should engage professional merchant banker advisory services to explore the most effective ways of splitting and unbundling LIC’s activities. This approach is expected to create more efficient and value-generating competitive units, thereby attracting fresh investments into the sector.
Conclusion
The recommendations put forth by the IIM-K report represent a comprehensive strategy for revitalizing India’s insurance sector. By addressing the structural issues within LIC and public sector insurers, the government can pave the way for a more competitive and inclusive insurance landscape.
Note: The information presented in this article is based on a report by the Indian Institute of Management-Kozhikode and reflects the insights and recommendations made by the authors regarding the future of the insurance sector in India.
