New Delhi, June 25: The insurance regulator is tighening the screws on Life Insurance Corporation for its tardiness in meeting solvency margins — where there is a shortfall of around Rs 7,000 crore.
LIC, which has a minuscule capital base of Rs 5 crore, has been asked to rustle up the cash to bridge the shortfall in its solvency margin by March 31 next year. The Insurance Regulatory Development Authority (IRDA) has asked LIC to raise its solvency margin to Rs 10,000 crore by that date.
“We have discussed the matter with LIC which must have a solvency margin of Rs 10,000 crore. LIC has already created a reserve of Rs 3,500 crore,” said C. S. Rao, the new chairman of the IRDA.
Rao said, “LIC is a sound insurer; the capital needed is just a technical requirement.”
The insurance companies’ solvency margin is calculated at 6-8 per cent of the new business written each year.
LIC’s new individual business during 2002-03 amounted to Rs 10,156 crore. The state-owned insurer has two options before it to meet the solvency margin: the first is a fresh capital infusion or by harnessing the government’s share of surplus funds with the corporation.
Moves are reportedly afoot to amend the LIC Act to help the state-owned life insurer expand its capital base of Rs 5 crore. LIC is grossly under-capitalised when compared with private insurers who are required to have a minimum capital base of Rs 100 crore.
Rao, who was in the capital to attend a two-day conference on natural disasters, fiscal and financial risk management jointly organised by Ficci and the World Bank, said there was a need to prepare a modern unified legislation for disaster management.
“With the current division of responsibilities between the state and central governments into state, central and concurrent lists, there is a need to create a body of legislation dealing with response to natural disasters and other emergencies,” he said.
Apart from clearly delienating responsibilities and powers of each entity, this body of legislation would also specify the manner in which these powers and actions would be activated on declaration of a disaster either by the Centre or a state government.
“It should also define the constituents of a disaster at the national level,” said Rao. He said the legislation should incorporate the current legislation dealing with chemical emergencies that has been created by the ministry of environment so that all emergencies are dealt with under one law.
IRDA chairman . Rangachary, said, “There should be an insurance pool to combat natural disasters. The government should also encourage individual insurance companies to build a catastrophe fund and make it tax-free so that money is available to meet the contigencies.”