The demand for enhanced investment freedom to insurance companies was voiced in the context of the R N Malhotra Committee's recommendations for opening up the insurance sector. The committee advocated private entry subject to the Controller of Insurance taking charge. It did not think the investment pattern should change dramatically. In fact, it ruled out more than a peripheral involvement in the corporate sector. In its wisdom, investment in equity shares, debentures or other debt instruments of any company should not exceed 10 per cent of the subscribed securities of the company. It even wanted LIC and general insurance companies to reduce their equity stake in corporates, where this was higher, to five per cent over ``a reasonable number of years''. For all insurance segments, support to the Government and socially oriented sectors was uppermost in the committee's priorities. The panel declared itself in principle opposed to inter-locking of insurance funds with those of other corporates. It did not consider if this would not neutralise the basic recommendation of private participation in the insurance sector.

Globally, insurance is increasingly an integral part of business plans of financial services organisations. There is a lot of freedom in their investments. Lloyds of the London market, a big name in the business, underscores the freedom by letting insurance risks be bought and sold in the same way as shares are traded, though within a regime of strict financial discipline. The committee of Lloyds acts as an overseer for its members, comprising brokers who place the risk, under-writers who accept the risk and the underwriting members who finance the risk. Banks are getting into it in Europe, leading to ``bancassurance'':where banks set up their own life insurance operations to widen their client bases. No wonder, the kind of investment norms or priorities that are sacrosanct here have not been thrust on insurance companies in western countries. No doubt, there are social commitments, as for instance in the United States there is the Federal Community Re-investment Act, 1977 which demands of banks a kind of priority lending, but nowhere does an extreme position prevail where the operations get severely constrained. In India, if the idea is to really liberalise the insurance business, policymakers must let everyone walk in — banks, FIs and housing/building societies -- and also eschew too many socially-oriented demands on the players.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.