NEW DELHI- THE Government of India have decided to nationalize life insurance, it is officially announced.
An Ordinance issued today vests in the Central Government, with immediate effect, the management of life insurance business, including Capital Redemption business and Annuity Certain business. The Ordinance applies also to the foreign business of Indian insurers and the business in India of foreign insurers.
General insurance business is not affected and it will continue to be managed as at present.
In the case of insurers carrying on only life insurance business and of provident fund societies, the entire management vests in the Government. In the case of composite companies, the management of the life insurance part alone vests in the Government.
The Finance Minister, broadcasting from the Delhi station of A.I.R., assured “ reasonable compensation “ “ both in respect of the short period during which the management of the companies will vest in the Government and in respect of the ultimate assumption of the proprietorial rights over them.”
The compensation, he promised, would be “ generally regarded as fair.”
The Life Insurance (Emergency Provisions) Ordinance provides, in respect of the period during which the management is vested in the Government, for compensation to shareholders “ on an equitable basis which reflects the allocations to the shareholders in the past.”
The Finance Minister said that a Bill for completing the process of nationalization will be brought before Parliament during the forthcoming budget session. Meanwhile, the Ordinance envisages the appointment, as soon as practicable, of Governments nominees to manage the business of insurers that has vested in the Government. Pending the appointment of these persons, who will be termed custodians, the existing managements would continue but as agents of the Government and they will have no authority to make investments.
CUSTODIANS
To the extent that it is possible to do so, says an official communique, it is the Governments intention to draw the custodians from the ranks of the employees of insurers.
The Finance Minister, in his broadcast, assured policyholders that there would be no interruption in the normal processes of the existing managements continuing the payment of all claims of policyholders. He also asserted that “ policies will be as safe as they are today, if not safer “ as, on nationalization, they would have the full backing of the Government. Addressing himself “ to the staff at all levels,” Mr Deshmukh said that they had nothing to fear, but added: “ I cannot, of course, guarantee the continuance of sinecures.”
Turning to “ industrialists and others,” the Finance Minister declared that it was not the Government’s intention to divert the available life funds to the public sector to a greater degree than under present arrangements.”
DECISION DEFENDED
In the course of an elaborate defence of the Governments decision, the Finance Minister tried to reply at length to arguments advanced in public discussions against the nationalization of life insurance.
Mr Deshmukh pleaded that the nationalization of life insurance was a vital part of the process of widening and deepening all possible channels of public savings for the purposes of economic development. He described it as “ another mile-stone on the road the country has chosen in order -to reach its goal of a socialistic pattern of society.” In his view, nationalized life insurance was bound to give material assistance in the implementation of the second Five-Year Plan.
TEXT OF BROADCAST
The following is the text of the Finance Minister’s broadcast-
This afternoon the Government have promulgated an Ordinance regarding life insurance. All life insurance companies, Indian as well as foreign, doing business in India come under Government management and control. This is the Brat and preparatory step towards the nationalization of life insurance It will be followed by the more elaborate action called for, and it is proposed to place before the next session of Parliament a Bill for the nationalization of this important sector of insurance business.
Both in respect of the short period during which the management of the companies will vest in the Government and in respect of the ultimate assumption of the proprietorial rights over them, reasonable compensation will be paid by the Government. What is reasonable compensation is a matter on which there is room for difference of opinion; but I am confident that the basis adopted by the Government will be generally regarded as fair.
In the course of their observations on the organization of the credit system of the country in connection with the first Five-Year Plan the Planning Commission drew attention to the necessity of fitting increasingly into the scheme of development visualized for the economy as a whole the banking system-and, in fact, the whole mechanism of finance, including ulsurance, stodk exchanges and other institutions connected with investment For, it is only thus, they said that the process of mobilizing savmgs and utilizing them to the best advantage becomes socially purposive.
MOBILIZATION OF SAVINGS
Principally with a view to ensuring the spread of banking and credit facilities to the rural areas, the Imperial Bank of India was nationalized last year. The nationalization of life insurance is a further step in the direction of more effective mobilization of the peoples’ sayings. It is a truism which nevertheless cannot too often be repeated, that a nation’s savings are the prime mover of its economic development. With a second Plan in the offing involving an accelerated rate of investment and development, the widening and deepening of all possible channels of public savings has become more than ever necessary.
Of this process the nationalization of insurance is a vital part. Let me give you a few figures. Today, some 50 lakhs of policies are in force paying annually a premium of ₹55 crores. The life insurance assets amount to roughly ₹380 crores from which the companies derive annually a net income of approximately ₹12 crores. The total insurance in force exceeds a thousand crore that is a little over ₹25 per head Quite recently, it was claimed on behalf of private enterprise that the business in force could be increased to ₹8,000 crores and the per capita insurance to ₹200, I am in complete agreement. There can be no doubt as to the possibilities of life insurance in India and I mention these figures only to show how greatly we could increase our savings through insurance.
I need scarcely say that the decision to nationalize has been taken after deep and careful consideration of all relevant factors: I rney indeed with justice claim also that we have done so with the certainty of the approval of the public and after full examination of the views expressed by the interests involved; for this matter has been the subject of public debate and discussion for several months past.
COMPANIES’ OPPOSITION
On the one hand, there has been , a very general demand for the nationalization of the entire insurance industry. On the other hand, the chairmen of a large number of insurance companies, life, general and composite, have set out in extenso all the arguments that could possibly be adduced against nationalization and have endeavoured to show that insurance of every form can flourish best only under private enterprise and with the stimulus of competition.
It is obvious that in a short talk such as this, I cannot enter upon a discussion of these arguments and to explain why they have failed to satisfy us and why we have, in spite of them. come to the conclusion that nationalization of life insurance is essential for the implementation of our Plan and therefore required in the public interest. Ample opportunity will, of course, be provided for such detailed discussion in Parliament.
I might. However, summarize the arguments that have been urged against nationalization and comment briefly on them. State schemes in other countries and in India, it is said, have not been successful, that several foreign countries which went into the question fully decided against it, that a State enterprise cannot possibly function with the same flexibility and efficiency that the private enterprise can and finally that the State-run life insurance cannot achieve the highest ideals of insurance.
UNQUALIFIED SUCCESS
I do not understand this last point and will, therefore, not comment on it. To us, on an objective appraisal, it appears that the only conclusion that can be drawn from the experience of other countries is that wherever there has been a whole-hearted attempt by the State, nationalization has been an unqualified success, even in the face of severe competition from the private sector, and failures, wherever they occurred, have been due to the half-hearted manner in which the experiments were tried. There is no reason why a nationalized industry cannot be run efficiently. It is our intention to see that those who are entrusted with the running of nationalized insurance have the discretion and freedom of action necessary to enable them to secure maximum efficiency.
It has become almost axiomatic with some to maintain that State enterprise qua State enterprise must be inefficient. And yet, the fact is that far too much is claimed for the efficiency with which private enterprise is run. Thus, even in insurance, which is a type of business which ought never to fail if it is properly run, we find that during the last decade. as many as 25 life insurance companies went into liquidation and another 25 had so frittered away their resources that their business had to be transferred to other companies at a loss to the policyholders.
Then again, though I do not wish unduly to emphasize this point, far too unhealthy an enterprise has been shown by a number of insurance companies in the investment of funds. Only recently, there was the case of the Bharat Insurance Company when some ₹2 crores were misapplied and there have been several other cases. The amount of capital required for starting or running an insurance company is extremely small as compared to the total life fund that it may come to control. Once, however, the control is secured. the tendency not infrequently has been to utilize the funds to meet the capital requirements of enterprises in which the managements are interested rather than those which are clearly in the interests of policyholders.
GENERAL INSURANCE BUSINESS
I would like also briefly to explain why we have decided not to bring the general insurance business into the public sector. The consideration which influenced us most is the basic feet that general insurance is part and parcel of the private sector of trade and industry and functions on a year to year basis. Errors of Omission and commission in the conduct of its business do not directly affect the individual citizen, Life insurance business, by contrast, directly concerns the individual citizen whose life savings so vitally needed for economic development, may be affected by any acts of folly or misfeasance on the part of those in control or be retarded by their lack of imaginative policy.
My object in speaking to you tonight is strictly limited. I thought it desirable that I should myself give you some idea, however brief, of what we intend to do during this interim period and, in particular, to assure all those directly affected the policyholders, the management and the staff, both office and field -that the companies concerned will be able to continue to work uninterruptedly.
The Ordinance is designed to ensure that the existing managements of the insurance companies are able to carry on exactly as before until such time as a custodian is appointed to look after the affairs of each company. The only difference will be that the management will function as agents of the Government, and that certain of its powers will be restricted. Thus, it cannot invest any of the funds of the company save in accordance with instructions given by the duly authorized officers of the Government; likewise while the payment of all claims of policyholders can be made by the existing management under its own authority, it must seek the authority of the authorized person if the payment of a claim is not in accordance with the normal practice. In other words, it will be our object to see that there is as little interference in the day-today management as is consistent with the attainment of our main objective, viz., the safeguarding of the funds of the policyholders, and to the extent they have a claim, the interests of the shareholders. Naturally, it will be our endeavour to put a stop to any malpractices that may come to our notice.
ASSURANCE TO POLICYHOLDER
To the policyholders, I wish to give the assurance that their policies will be as safe as they are today, if not safer. Private insurers may fail, but the State cannot fail. To those intending to take our life policies, I would say that they should proceed with confidence in view of the proposed nationalization and indeed step up their proposals for, on nationalization, their policies will have the full backing of the Government and acquire a new element of absolute safety.
To the staff at all levels, I would say that they have nothing to fear. I seek their loyalty and devoted work. I cannot, of course, guarantee the continuance of sinecures.
I should also like to reassure the spokesmen of the private sector, industrialists and others that it is not Governments intention to divert the available funds to the public sector to a greater degree than under present arrangements. Indeed, it will be my endeavour to see that at least as much money as is today made available for investment in the private sector continues to be so made available, If there is a change, therefore, it will be only to ensure that there are no privileged sections in the private sector, or rather, that privil0ge, in the sense the priority, hereafter is made dependent upon the broad objectives assigned under the Plan to the private sector. The misuse of power, position and privilege that, we have reason to believe, occurs under existing conditions is one of the most compelling reasons that have influenced us in deciding to nationalize life insurance.
To the members of the public, I would reiterate this step has been taken after long and mature consideration. I would appeal to them not to be led away by those who would oppose that step on purely dogmatic considerations, regarding State enterprise as invariably a failure and private enterprise as unerringly successful We are determined to see that the gospel of insurance is spread as far and wide as possible and so that we reach out beyond the more advanced urban areas well into the hitherto neglected rural areas.
We have not been influenced by any doctrinaire dislike of private enterprise m reaching our decision. Were that so, we would not have left alone the other big sector, the general Insurance. Ours is a positive approach. I might even say in this case, a creative approach. We are convinced that out of the large number of individual units operating in life insurance, some good, some moderately good, and a large number not so good, or even positively bad, we can weld together a dynamic and vigorous organization, capable of taking insurance to every sector of people throughout the country and mobilizing their savings while affording to them complete security together with efficient service.
The nationalization of life insurance will be another mile-stone on the road the country has chosen m order to reach its goal of a socialistic pattern of society. In the implementation of the second FiveYear Plan, it is bound to give material assistance. Into the lives of millions in the rural areas it will introduce a new sense of awareness of building for the future -in the spirit of calm confidence which insurance alone can give. It is a measure conceived in a genuine spirit of service to the people. It will be for the people to respond, confound the doubters and make it a resounding success.
