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The Capitalist | The agony, ecstasy of insurance

The Capitalist | The agony, ecstasy of insurance
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First Published: Thu, Jul 02 2009. 12 58 AM IST

The trend was slightly different in the non-life insurance sector. Ahmed Raza Khan / Mint
The trend was slightly different in the non-life insurance sector. Ahmed Raza Khan / Mint
Updated: Thu, Jul 02 2009. 12 58 AM IST
The life insurance industry in India is hurting. Annual premiums declined by almost 8%. One reason could have been the economic downturn, which has cut into people’s disposable incomes. After all, with the capital markets also in the doldrums, and jobs disappearing, many people have little incentive for allocating funds to life insurance policies. It is not known how many policies were allowed to lapse during this period.
The trend was slightly different in the non-life insurance sector. Ahmed Raza Khan / Mint
Within this sector, Life Insurance Corp. of India Ltd (LIC), the venerable public sector insurer, was the big loser. LIC saw its market share tumble to 41% in 2008-09 from 48% the year before. But private firms did better. They increased their share in life insurance to 59% in 2008-09 from 52% in the previous year.
The trend was slightly different in the non-life insurance sector. This market—for gross written premiums—grew by 9% last year compared with 2007-08. Here, too, private firms proved to be more aggressive, growing by 12% as against a 7% growth of the government-owned companies. And contrary to what some people say, here, too, government-owned non-life insurance companies saw their market share slip, though marginally, from 60% to 58.9%, while the private sector saw an increase from 40% to 41%.
Clearly, there will be more agony for state-owned insurers in the coming years, as business declines despite a large workforce.
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Where’s the gas utilization policy?
The government has suddenly woken up to a crisis in the gas industry. Some wonder if the government’s policy on natural gas should be allowed to be dictated by provisions in a family agreement between the estranged Ambani brothers. Mukesh Ambani-managed Reliance Industries Ltd and Anil Ambani-controlled Reliance Natural Resources Ltd are fighting a lawsuit over the price of natural gas. But while this debate rages, few have focused on the cause for the heat and dust: India does not have a natural gas utilization policy.
In a white paper released a few weeks ago, Ashok Sreenivas and Girish Sant of Prayas Energy Group point out: “All documents—either publicly available, through private databases, or through media reports—only present an allocation of gas to different sectors and do not really constitute a utilization policy.”
None of them “articulate the national objectives that gas utilization ought to fulfil and how the said policy fulfils it. They do not present sufficient analysis of different trade-offs in possible usage. Some important gas uses, such as distributed heat and power production (industrial co-generation or tri-generation) find no mention at all”. Prayas Energy Group is a Pune-based non-profit organization that analyses policy in the Indian power sector.
Moreover, the two authors say there are some discrepancies between the draft policy paper prepared by the ministry of petroleum and natural gas, and its press release about the actual gas allocation. For example, the draft paper says gas should be first made available to state-owned power plants and then to private and independent power plants, but the press release is silent about this.
Finally, they add, gas utilization cannot really be separated from gas price. Nor can the government shirk from clarifying that only those power plants that pass on the full benefit of gas use to electricity consumers should be given priority allocation, thus reducing priority to captive and merchant power plants.
But just a moment! Isn’t this what India’s policymakers are supposed to do? Or was it forgotten merely to allow private interest to ride roughshod over national and public interest?
Vexatious demerger
On 26 May, Reliance Communications Ltd (RCom), India’s third largest telecom operator, received approval from its shareholders for the demerger of its optic fibre division and merger with it wholly owned subsidiary Reliance Infratel Ltd. Just a week earlier, the scheme had invited the wrath of minority shareholders.
Time will tell whether the scheme is good for the shareholders of RCom. But the country’s policymakers have turned a blind eye to a basic problem. When the optic fibres were laid underground, it was done by riding piggyback on the right of a telecom service provider to dig the ground, even across roads. This is a right available only to the government in general, and to public utility companies in particular. Telecom companies, therefore, enjoy this right.
Now that the cables have been laid underground, and the company is being hived away from RCom, do they remain illegal cables lying underground without the protection of a licence to keep them there, and even to repair them if the need arises?
What is even more worrying is that these costs were billed to RCom initially because they were clubbed with the laying of RCom’s cables. Will RCom shareholders be compensated? And finally, is it fair to deprive shareholders of revenue streams just before the new venture goes operational?
True, most of these queries deal with laws and ethics. But isn’t that what good corporate governance is all about?
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com
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First Published: Thu, Jul 02 2009. 12 58 AM IST
More Topics: The Capitalist | RN Bhaskar | LIC | Insurance | Premium |