Govt delaying IRDAI chief appointment to rush LIC IPO: People's Commission

Says previous IRDAI chief retired in May 2021 and FinMin had been planning the IPO well before chief's post fell vacant, but did not name a successor even after 8 months

The Centre has chosen to weaken the regulatory oversight of Insurance Regulatory and Development Authority of India (IRDAI) over the initial public offering of Life Insurance Corporation of India (LIC) by not appointing the regulator’s chief, said the Peoples’ Commission on Public Sector and Public Services.

In a letter to Cabinet Secretary Rajiv Gauba, the commission, which has academicians, former bureaucrats, economists, among others as members, said the Ministry of Finance allowed IRDAI to carry its regulatory functions over the insurance business, without having a regularly appointed Chairman, as mandated under Section 4 of the IRDA Act.

The previous IRDAI chairman S C Khuntia retired on May 6, 2021 and the finance ministry had been planning an IPO of LIC well before the chief’s post fell vacant, but did not appoint a successor even after eight months, the commission said.

“The IPO in this case apparently seeks to dilute public control over the enormous wealth of the household savings in the country and progressively transfer it to a handful of elite domestic and foreign investors. This is a matter of serious public concern. The fact that a headless IRDAI will now be considering the draft IPO proposal for the disinvestment of the LIC erodes the credibility of the exercise, the commission said in its letter. 

The Ministry of Finance did not respond to a request seeking comment. On Sunday, the LIC filed the draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) stating that the government will sell its 5 per cent shares through the offer. The embedded value of the insurer has been estimated at Rs 5.39 trillion, and its market valuation would be known after consultations with investors.

If there would have been a fully constituted insurance regulator, as mandated by law, “it would have, in all likelihood, turned down the draft IPO proposal that deprives the policyholders of what is legitimately due to them and which violates the principles of natural justice from their point of view,” it said. The letter urged the cabinet secretary to advise the Union Cabinet not to take further action on LIC disinvestment till such time the Ministry of Finance appoints a competent person of integrity to head the IRDAI, with adequate time at to examine the complexities of the proposed IPO and its far reaching implications for the millions of the policyholders.

The commission has stated that policyholders have predominantly contributed to the growth of the LIC since its inception, and almost the entire proportion of the equity base of the LIC, except the limited capitalisation contributed by the government, should notionally be deemed to have been contributed by the policyholders.

“At best, the sovereign guarantee provided by the government to the LIC's policyholders may be notionally valued and reckoned as a part of the equity capital,'' it said.

If this isn’t reflected appropriately in the equity capital base of the LIC, it would result in private investors gaining undue control over the affairs of the LIC, to the detriment of the interests of the policyholders, the majority of whom are small ticket investors, and have invested their hard earned household savings in the LIC.

The proposal to allow both domestic and foreign investors to buy LIC's equity “will set in motion such an unfair process that deprives the policyholders of their legitimate share in LIC's equity base and, over the years, alter the character and the objectives of the LIC as the country's largest provider of social security cover.  

The commission has also reached out to SEBI stating that the IPO will alter the existing arrangement where policyholders are entitled to 95 per cent of LIC’s profits. Listing of LIC will counter the insurer's role as a part of the welfare state as provided in the Directive Principles of the Constitution.