The Insurance Regulatory and Development Authority of India (IRDAI) has said Life Insurance Corporation (LIC) may have to reduce its stake in non-strategic investments — particularly in scrips like ITC and L&T — to 15 per cent by December 2018. “Since LIC was buying out SUUTI disinvestments in these two scrips and the government would have got the money, we have allowed LIC to reduce its stake in L&T and ITC to 15 percent by December 2018 and these two are considered as non-strategic investments of LIC,” IRDAI Member Nilesh Sathe said on the sidelines of a CII summit.
LIC can continue its strategic investment in other firms beyond 15 per cent — especially in Corporation Bank and LIC Housing Finance. Sathe said the regulator doesn’t want LIC disinvestment in any firm to create disruption. “So we are willing to consider case-to-case request from LIC to extend the timeline to bring its stake down to 15 per cent,” he said. Talking about LIC shareholding in listed companies, IRDA Chairman TS Vijayan said regulation for investment is 15 per cent and in exceptional circumstances sometimes exemptions are given to invest more. “All the investment should be for the benefit of policy holders and investors and the companies should not be locking the money in and they should use the funds for the policy holders,” he said.
“Regulation is 15 per cent, and when someone asks, in exceptional circumstances, we will give them some exemptions. Sometimes we give them liberty to invest more. At some point of time we advice them to bring it down to 15 per cent,” he added. “There is scope for existence of small insurance companies today with focus on specific geography or area of operation,” Vijayan said while addressing the CII insurance summit. Drawing attention to the shape of insurance industry just before nationalisation in mid-1950s, Vijayan said, “in India, smaller companies do have a space. What you need is capital and cost structure to support it. If you want to float a small company, you cannot pay CEOs six digit salaries. The expenses will be limited,” Vijayan said.
“Just before LIC was formed in 1956, there were 246 insurance companies in existence, and they were very small,” said Vijayan, who was the chairman of LIC before becoming the IRDA Chairman. There are 24 life insurance companies and 31 non-life insurance companies in India now. Though Indian insurance industry is already on a fast paced growth of 20-30 per cent in various segments, the concern was coverage or penetration, the IRDA chief said, adding, “what we have to see is how many people are taking advantage of insurance cover.”
LIC chairman VK Sharma said: “Only digitisation or technology cannot solve the problem of frauds. As technology advances, frauds also go up. We have to develop technology-human matrix capturing individual behavioural data to prevent frauds.”