Scrap sovereign guarantee to LIC policyholders: Committee

Chennai: At a time when the safety of the investor’s money is a major hassle, the S P Subhedar committee, in its first set of recommendations, has suggested scrapping the central government guarantee to Life Insurance Corporation of India’s (LIC) policyholders.

The central government as LIC’s owner has been offering this guarantee since 1956. The postal life insurance is the other business where the central government bears the liability to policyholders.

The Subhedar committee was constituted by the Actuarial Society of India (ASI) to recommend changes in the insurance laws to the Law Commission of India. The committee consisted of consulting and appointed actuaries from life, non-life and reinsurance companies but didn’t have any actuarial representation from LIC.

Under the LIC Act, the central government guarantees to settle all the policyholders’ dues (sum assured and the bonuses accrued) in cash. This aspect is one of the unique selling propositions of LIC agents. And the private life insurers find this a formidable hurdle to cross at the market place.

Coming on the heels of Unit Trust of India’s (UTI) US-64 bailout by the government, the committee’s recommendation is likely to generate a lot of heat and debate among the general public.

Says ASI president Liyaquat Khan, who is a committee member: “The real safety or comfort for policyholders is the insurer’s solvency margin - not sovereign guarantee that cannot be foreclosed or actualised and which could be altered by the government by amending the Act.”