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The nationalisation of life insurance is an important step in our march towards a socialist society. Its objective will be to serve the individual as well as the state. We require life insurance to spread rapidly all over the country and to bring a measure of security to our people. – Jawaharlal Nehru.
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The nationalisation of life insurance is an important step in our march towards a socialist society. Its objective will be to serve the individual as well as the state. We require life insurance to spread rapidly all over the country and to bring a measure of security to our people. – Jawaharlal Nehru
The first step towards nationalisation of life insurance was taken on 19 January 1956 by the promulgation of the Life Insurance (Emergency Provisions)Ordinance, 1956.
Before nationalisation, the insurance industry was organised into 243 autonomous units, each with its own separate administrative structure of office and field staff, its own separate set of agents and of medical examiners. Their offices concentrated in the large cities and their field of operation was confined to the major urban areas. Out of 145 Indian insurance companies, as many as 103 had their head offices in the four cities of Bombay, Calcutta, Delhi and Madras.
When the Corporation was constituted on 1 September 1956, it integrated into one
organisation, the controlled business of 243 different units, Indian and foreign, which were engaged
in the transaction of life insurance business in India.
The total assets of the above 243 units as on 31 August 1956 were about Rs 4,110 million and
the total number of policies in force was over five million assuring a total sum of more than Rs 12,500
million. The total number of salaried employees was nearly 27,000. These figures give a broad idea
of the magnitude of the problem involved in setting up an integrated structure.
LIC
When parliament set up LIC as a monopolistic public undertaking, it was argued and
believed that elimination of competition and the malpractice that competition has given rise to, would
lead to:
a) Better and more economical management of the Business of life insurance.
b) Reduction in administrative expenses.
c) Improvement in the quality of service.
d) Increase in volume of business.
e) Maximisation of social advantages that insurance can provide through higher returns on
investments of life fund, consistent with safety and liquidity of the invested funds.
Moving the life insurance (emergency provisions) Bill 1956 in the Lok Sabha on 29th February
1956, the then Finance Minister, C D Deshmukh, stated as follows:
Insurance is an essential social service which a welfare state must make available to its people
and the State must assume responsibility for rendering this service once it cannot be provided in any
other manner. So while it is the failure of the general run of insurance companies to live up to the
high traditions demanded of them that has led the Government to take this step. I would like to
emphasise that nationalisation in this field is in itself justifiable. With the profit motive eliminated,
and the efficiency of service made the sole criterion under nationalisation, it will be possible to spread
message of insurance as far wide as possible, reaching out beyond the more advanced urban areas
and into hitherto neglected, namely, rural areas.
The Finance Minister had also revealed that the Govt. had taken up the investigation of the
functioning of the Life Insurance Industry in the private sector sometime in 1951. He said that the
industry was not playing the role expected of insurance in the modern times and efforts at improving
the standards are needed. Commenting on the dismal performance of the insurance companies, he
said that there were extravagant expenses incurred by the private insurers. He said that the ratio of
expenses of management to premium income for Indian insurers was 27%. Even statutory imposition
of expense limits had failed to check extravagant expenditure. On the point of policy servicing he
said that with all this high expenditure, one would expect that policyholders were well served but
here also the record was not good. Post-sale services did not exist and lapses continued to be high.
He also pointed out that there was a large-scale fraudulent-investment resorted to by the various
companies with a view to divert the funds to some other purposes. He said that the kind of
mismanagement and outright frauds indulged in by the private companies had pushed as many as 25
insurance companies into liquidation during the decade 1944 to 1954. Among the companies carrying
on the business, as many as 75 were unable to declare any bonus at their valuations. Besides, Shri
Deshmukh said that the insurance companies remained confined to urban areas and the creamy
layers of the insuring public totally neglecting the ordinary people and the rural area. As regards
settlement of claims, he said that many companies systematically postponed or avoided payment of
claim until of course forced by the legal means. In 1954, a thousand complaints were received by the
Government alleging delays and non-payment of claims. A number of complaints were referred to
the Controller of Insurance under Sec. 47 A of Insurance Act, 1938. In most of the cases, it was found
that the insurance companies were wrong and there were clear attempts to defraud the insuring
public.
Therefore, it was felt that in India, the private insurance companies had failed to live upto the
expectations of the insuring public.
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