The government plans to divest its stake in General Insurance Corporation (GIC) and Life Insurance Corporation (LIC) once privatisation is introduced in the sector through amendments to the LIC and GIC Acts, officials said.
The proposed Insurance Regulatory Authority (IRA) Bill, aimed to provide statutory status to the regulator, will also carry amendments to the GIC and LIC Acts, to end their monopoly. The government may include an enabling clause along with the amendments for reducing its stake in the two insurance behemoths. "Once the sector is privatised, there is no point for the government to hold on to its stake in LIC and GIC. The government stake in LIC and GIC will have to be divested as privatisation in the sector deepens," officials said.
They discounted any immediate effect on LIC's and GIC's operations following the opening up of the sector. "LIC and GIC have a massive network and infrastructure. This gives them access to cheap funds in rural areas. Their operations will barely be affected at least in the first 10 years," an official said.
"There were fears of the impact on LIC's and GIC's rural operations. It is for the companies to restructure their operations accordingly. The government will not provide any help," he added.
Further, in the next stage of reforms, the four subsidiaries of GIC will be given autonomy and GIC will be made a reinsurance company. "We could possibly see insurance companies operating on a geographical basis in the next 10 years. Oriental Insurance in the north, New India in the west, United India in the south and National Insurance in the east. In fact, even the foreign insurance companies will try and concentrate on a geographical basis, at least initially, owing to the high cost of setting up countrywide networks," the official said.
