Role of Life Insurance in National Economy

By ERA SEZHIYAN

Summary

Era Sezhiyan’s 1985 A. D. Shroff Memorial Lecture, delivered in Bombay on 26 April 1985 and published by the A. D. Shroff Memorial Trust, evaluates the record of nationalised life insurance in India three decades after the 1956 nationalisation. Drawing on his work as Chairman of the LIC Review Committee (1979–80) and his long parliamentary career, Sezhiyan organises his argument around three planks: the benefit of life insurance for individuals and the country, the objectives and performance of the nationalised industry, and the attitude of the Government with concrete suggestions for improvement.

The early sections explain how life insurance evolved from short-term risk cover into long-term endowment plans that bundle savings with risk protection, and then situate insurance within India’s anaemic social-welfare provision. Citing the World Bank’s World Development Report (1984), Sezhiyan notes that India devotes only 4.2 per cent of central government expenditure to social welfare against 30–60 per cent in countries with twenty to fifty times its per-capita GNP, and argues that life insurance therefore has a heightened role to play in providing security to the “teeming millions of disadvantaged people”.

A detailed chronology of life insurance in India — from the Oriental Life Assurance Co. (1818) through the Insurance Acts of 1912, 1928 and 1938 to the 1956 nationalisation — is anchored by long quotations from C. D. Deshmukh’s broadcast and his speech moving the Life Insurance (Emergency Provisions) Bill, in which the Finance Minister framed nationalisation as a vehicle for “more effective mobilisation of the people’s savings”. Sezhiyan accepts this premise but proceeds, in the “Progress of Nationalised Insurance” and “Failure to Mobilise” sections, to set the LIC’s headline successes (premium income growing from Rs. 278 crore in 1957 to an estimated Rs. 5,500 crore in 1984-85; life fund rising from Rs. 409 crore to Rs. 9,800 crore) against a damning record on its stated objectives.

In the rendered pages he documents a decline in the rural share of new business from 38.5 per cent (1963) to 35.1 per cent (1984); a 41.41 per cent lapse-and-surrender ratio in 1983-84; an unstable agency cadre in which roughly 45,000 agents leave each year; and, most strikingly, a fall in life insurance’s share of household financial savings from 10.6 per cent in 1970-71 to 7.3 per cent in 1983-84 even as bank deposits rose from 41.3 to 46.6 per cent. Sezhiyan, declaring himself a supporter of nationalisation in principle, indicts the “ineptitude of the management and the inexcusable negligence of the Government” for defeating LIC’s social and financial mandate. The chunk ends mid-discussion of the structural reasons why nationalised insurance cannot compete with other savings instruments.

Key points

• Sezhiyan delivers the 1985 A. D. Shroff Memorial Lecture organised around three questions: benefits of life insurance, the LIC’s performance, and the Government’s attitude — drawing on his chairmanship of the LIC Review Committee (1979–80).

• He explains the evolution of life insurance from short-term risk cover to the with-profit Endowment Assurance, whose premium has four components — savings, risk, expenses, and bonus loading — illustrated with an actuarial breakdown of a 20-year policy issued at entry age 30.

• Citing the World Bank’s World Development Report (1984), he contrasts India’s 4.2 per cent of central expenditure on social welfare with 29–60 per cent in Australia, Canada, West Germany, the USA and Switzerland, arguing this leaves insurance with a disproportionate burden of providing security.

• He chronicles regulatory history from the Oriental Life Assurance Co. (1818) through the Acts of 1912, 1928 and 1938 to nationalisation in 1956, anchored by Finance Minister C. D. Deshmukh’s articulation of nationalisation as a tool for mobilising household savings.

• Headline LIC growth figures are recited — new business from Rs. 278 crore (1957) to an estimated Rs. 5,500 crore (1984-85); business-in-force from Rs. 1,374 crore to Rs. 30,266 crore; life fund from Rs. 409 crore to Rs. 9,800 crore.

• Against these, Sezhiyan documents failures: the rural share of new business has slipped from 38.5 per cent (1963) to 35.1 per cent (1984); only 2.3 per cent of the self-employed and under 10 per cent of insurable males are covered; lapses and surrenders ran at 41.41 per cent in 1983-84.

• Despite endorsing nationalisation in principle, he calls out “the ineptitude of the management and the inexcusable negligence of the Government” as threatening to defeat the very purpose of LIC.

• He demonstrates the failure to mobilise savings: life insurance’s share of household financial savings has fallen from 10.6 per cent in 1970-71 to 7.3 per cent in 1983-84, while bank and non-bank deposits rose from 41.3 to 46.6 per cent in the same period.

---

Generated by the v1.5 extraction pipeline. Awaiting editorial review.