Wrong impression

Sir, - This has reference to the article ``Fighting shy of competition'' (TheHindu, May 2). It appears that the author is not well acquainted with facts concerning our organisation.

The very first point he makes against us - making of enormous profits - is itself a dubious one. There is no concept of profits in a life insurance organisation like ours. The difference between the income and outgo is termed as the valuation surplus. This is arrived at after an actuarial valuation which involves assessment of liabilities with the help of the theory of probability and not through ordinary accounting methods. Ninetyfive per cent of this surplus is allocated as bonus for with-profit policies that are in full force as on the March 31 of the relevant year and the remaining 5 per cent is given to the Government as its dividend for its initial investment.

Secondly, the author laments that only 7 per cent of the population is covered by the LIC. This is also wrong. At present the LIC has covered more than 12 crore lives through its individual and group insurance schemes and this will be more than 25 per cent of the insurable population.

His remarks about the premium rates are unfounded. We do not know how he has arrived at the conclusion that our premium rates are prohibitively high. He has not enlightened us with the logic behind his theory. Life insurance premiums the world over are based on three factors - the mortality rate, the interest rates prevalent and the management expenses of the insurer. The LIC has no control over the first two factors, while the expenses have been pegged at a very low level. The renewal expense ratio of our organisation is only around 5.38 per cent (as on March 31, 1999) as against the prescribed level of 15 per cent.

He is mistaken in assuming that the LIC makes a neat packet on account of lapsed polices. Policies that lapse within the first 3 years do not contribute any surplus since the procurement and servicing expenses usually account for these. Even if a surplus is generated, it goes into the valuation surplus amount, which is distributed as mentioned above and the organisation does not keep anything for itself.

His recounting of his personal experiences as the Secretary, Consumer Protection Council, negates the very principle of natural justice. The fact that an organisation is embroiled in a number of cases does not ipso facto mean that it is culpable. LIC success record in litigation is not as bad as he has made it out to be. In fact, LIC's decisions have been upheld by many courts of law in more cases than those in which it has been pulled up.

His charge of lack of transparency is not based on facts. LIC's performance indices are delineated in detail in the annual reports published every year and his call for a social audit is unjustified against an organisation that has been serving the cause of the people for more than 40 years.

H. H. Faruqi,

Executive Director (PR&PUB),

LIC of India, Mumbai

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