The state-owned Life Insurance Corporation (LIC) declared on Friday that it has never used the sovereign guarantee as a marketing gimmick or to invoke it for its policies.
The biggest insurer in India stated that it competes with 24 private firms in a market that is completely open to all. Following a report by the Office of the United States Trade Representative (USTR) claiming that India continues to maintain an unfair insurance market, it issued the statement.
The Securities and Exchange Board of India and the Insurance Regulatory and Development Authority of India oversee LIC, which is not granted any special treatment.The government and regulators treat LIC the same as they do any other insurance company. Established in 1956, the guarantee is a statutory provision intended to foster public trust during the initial years of nationalization. It has never been brought up, utilized as a promotional tool, or given LIC an unfair advantage.
"LIC's success in the insurance industry is entirely due to its policyholders' trust, commitment to service excellence, and financial strength and transparency. With a 69-year legacy, LIC continues to serve over 30 crore [300 million] customers in India with dedication and professionalism," it stated.
According to the USTR report, Indian state-owned insurance companies are not subject to the same laws and "prudential supervision" as private firms, but do benefit from various government guarantees.
The Indian government provides an explicit sovereign guarantee on all LIC policies. As a result, many customers prefer to purchase LIC policies over those offered by private insurers, giving LIC an unfair competitive advantage, according to the report.
LIC stated that the USTR's views are based on an incomplete understanding of Indian insurance regulation and LIC's operations. "We urge for a more balanced and factual appreciation of LIC's role and contribution to financial inclusion and policyholder protection in India" , according to the statement.
There are 25 companies in the life insurance sector, with LIC being the only one owned by the state. Despite the presence of 24 private life insurance companies, LIC controls a sizable portion of the marketplace. This is largely due to its distribution strength, which is determined by agents. LIC has more than 1.4 million agents, while the 24 private sector companies collectively have 1.61 million agents.
According to the USTR report, Indian regulations mandate that reinsurers have first preference (or right of first refusal) in the reinsurance business. This results in unequal treatment for foreign reinsurers and consolidates risk in a small number of Indian reinsurers, which goes against global best practices for risk diversification.
The only domestic reinsurer in India is state-owned GIC Re, which has been in business since 1972. GIC Re was designated "national reinsurer" following the liberalization of the insurance industry in 2001, and it now has the first right of refusal and mandatory cession. In addition, 13 foreign reinsurance branches, established by global reinsurance companies such as Munich Re, Swiss Re, and Lloyd's, operate in India.
