f i n a ncialma l rk b e o t l s g - nfifwinfifwi.com/magazine/2011.008.pdf · b) review of fca,...

August 2011VOL XXVIII Issue No.8 Annual subscription Rs. 90/-

GLO

BA

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FIN

ANCIAL M

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on the verge of another collapse ?

Trainings have always been the essential and indispensable ingredient of any marketing

organization. Training evolves the marketing technique of the organization and keeps it suited

according to the changing needs of time. The personnel undergoing the training constantly sharpen

their skills and ensure they are in tune with the organization's vision. As the foremost insurance

organization in the country, LIC also imparts much importance to training. There is a multi

structured in-house training infra structure in LIC which has taken care of the trainings so far. But,

it would be imperative for the management to make introspection whether the trainings, of late, are

really achieving their objectives. The quality and content of these trainings are really a matter of

debate.

It is the same case in the PRIDO training for Development Officers or the PROT for the

Agents or the OD/HRD training for all office personnel. The PRIDO training comprises of the old,

rusted modules of time management and team building by STC faculties, who are far removed

from present times. The only saving grace is the good accommodation and food. The PROT has

become a sort of nightmare for the Agents. Even the Divisional authorities secretly admit that this

is a waste of effort and money. The only objective, perhaps the PROT accomplishes is providing re-

employment for some retired LICians. The OD/HRD training is a ritual that is generally conducted

during the second half of the financial year. Same topics and makeshift faculty makes the exercise a

real farce. Experience suggests that people are now reluctant even to participate in trainings at

ZTCs, which used to be centres of excellence.

Age old wisdom suggests that you get to learn something from every training. But however

hard you try, chances are more that you will return empty handed from the recent training

programmes of LIC. Nothing new on offer, only some usual management games, that no body

understands their practical relevance. The management should make an honest assessment, if the

money spend on these trainings is really worth it. Is this what the participants actually need? The

management should look around and see how trainings are conducted in other marketing

organizations. Trainings have gone forward very much and the fact is that Development Officers

andAgents are actually spending lot of money to attend these mostly paid trainings. They compare

LIC's trainings with these. If the training programmes are really good, there will be participants on

a queue. The quality really matters.

The management should make introspection, how by their own admission 73% of the

Agents were trained during the Development Officer's unit meetings, while in contrast, the Branch

Managers had to run after, cajole and threaten the Agents to attend the PROT. The difference was

that we offered what the Agents needed for their daily marketing activities, whereas they had to

take what was given at the PROT, however unpalatable it was.

The importance of trainings can never be over stressed in a marketing organization. An

organization with the magnitude and potential of LIC can easily organize itself to impart trainings

of the highest quality. The perspective of trainings must undergo a major change. Training centers

must not become places to dump disgruntled and retirement-due elements. Product trainings must

occupy an important place. The services of eminent external faculties could also be utilized. For

every participant, the trainings must be an opportunity to reinvent himself. A journey towards

excellence.

EDITORIAL

Trainings - The LIC way

OF INSURANCE FIELD WORKERS

Vol XXVIII Book No 8 August, 2011

NEWS BULLETIN

Chief EditorR. Jayprakash

Associate EditorsK. VenkateshS. Sreekumar

EditorsJ. BaburajanM. B. Vinod

Editorial BoardV. ShibuB. ShibuHari T. Pillai

Please send yoursuggestions, articlesand contribution to

The EditorNews BulletinKalvit BhavanCapital HeightsPlamoodu, PattomTrivandrum - 4ormail [email protected]

The views &

opinion expressed

in the articles need

not necessarily be

that of NFIFWI

CONTENTS Page No

1. EDITORIAL

2. PERSPECTIVE 2From the Secretary General’s Desk

3. COVER STORY 4GLOBAL MARKETS – on the verge of another collapse?

4. AMERICA’S DEBT-CEILING CRISIS 9Prabhat Patnaik

5. MEDIA WATCH 12

6. ORGANISATIONAL ROUND UP 15

7. ORGANISATIONAL COMMUNICATIONS 15

8. CSR FOR INSURANCE SECTOR 16

9. PLLI CIRCULAR 20

NEWS BULLETIN THANKS

ALL WHO CONTRIBUTED TO THIS ISSUE

2

News Bulletin August 2011

PERSPECTIVEFrom the Secretary General’s Desk

Sec.Gen/11/2010-12 09th August 2011

To all the members of the National Executive Committee of NFIFWI

Notice and Agenda

This is further to the earlier Notice of the NEC meeting. The agenda for the National ExecutiveCommittee meeting scheduled to be held on Tuesday the 13th , Wednesday the 14th and Friday the15th of September 2011 at Amritsar, North Zone is given below. The meeting will start at 10am on 13th

September 2011 and continue on 14th and 15th September 2011 till the end of the meeting. Kindly planfor your return journey on 16th of September ’2011.

The venue of the meeting is at the “Hotel HK CLARK INN”, Ranjit Avenue, Amritsar. You willreceive the letter with all details from the host division Amritsar, NZ.

Agenda for the meeting is as follows

1. Garlanding the photo of late S.W. Kalvit & lighting of lamp and Inauguration.2. Minutes of the previous meeting.3. Presidential Address4. Organizational Matter: a) Amendments to the Constitution which is to be proposed to the Federal Council Meeting 2012 to

be finalized-Draft already circulated along with FCM 2010 Notice and Indore NEC will be the basis.5. Reporting by Secretary General on the activities after the Chennai NEC meeting. Discussions

with specific focus ona) Focus for new Incentive scheme and demands for review of GOIB schemeb) Review of FCA, Car advance, Meal Coupon conditions, Wage Revision Anomalies,c) Future strategies to fight the Issues of CLIA Scheme, Direct Marketing, MBG.d) Analysis of IRDA guidelines on Outsourcing, Agents Recruitment issues, Persistency norms

for Agents, Insurance Laws Ammendment Bills and its impact on LIC and Marketing force.Future Strategies to deal with these issues.

e) ULIP’s-Impact after the new guidelines on ULIPs and Reduction of Bonus Rates6. Organisational Matters

a) Position of Collection of Levy @ 1.5% of Gross Arrears and Outstanding Dues.b) Finalisation of the next Federal Council –Written Requests and Proposal for Conduct of FederalCouncil Meeting 2012 is requested. Central Zone and North Central Zone which had not beenable to conduct the previous FCM’s during their turn will get preference to host FCM 2012.

7. Any other matter with the permission of the chair.8. Vote of thanks and national anthem.

Any matter of concern other than what is already represented by NFIFWI may be submitted inwriting for follow up. Let us have a constructive NEC and make our Federation stronger.

Keep Marching ahead strongly and vigorously.National Federation Zindabad………… Long Live National Federation………….

NFIFWI ZINDABAD……………..Yours Comradely

R. JayprakashSecretaryGeneral

3


NFIFWI/ 42 /2010-12

12th August 2011

The Chairman

Life Insurance Corporation of India

Central office, ‘Yogakshema’,

Mumbai.

Ref: Review of Incentive Bonus (GOIB ) scheme

Respected Sir,

This is further to the discussions held on 13th July 2011 with the Marketing department. The

discussions with regard to review of GOIB scheme was held. The management had assured to give

the favorable proposal for review of Incentive Bonus scheme by the end of July 2011 and immediately

have the second round of discussions for an early settlement.

We feel really sorry and upset that once again the assurances and promises are not kept by the

management. In January we were assured that the proposal will be given immediately and

discussions will be held in February first week itself and that the scheme will be effective from

1.09.2010. This assurance of finalizing the IB scheme in February 2011 was not honored and the

then Executive Director(Mktg) retired in March 2011.We hereby place before you our strong

resentment on the above aspects.

In the market, the Development officers are facing tough situations due to recession, problems

of ULIPs, IRDA regulations, Minimum Business Guarantee for Agents, Non payment of Procurement

Expenses, Inadequate FCA and Non payment of ACA, Non availability of Agents Manual and

Presentation software, reduction in Bonus to policyholders. The already tough situation is further

worsened by widely publicized bad news for LICians that the CBI has ordered enquiry against the

top management officials of LIC. Earlier the news of the arrests of senior LIC officials by CBI has

damaged the name of LIC. The marketing force is struggling in the market to answer many

embarrassing questions. The Development officers are unreasonably and unfairly penalized by

elements of Graded credit and Growth in the IB scheme which makes the working situation more

miserable for us.

We call upon you to urgently give us the favorable proposal for review of IB scheme redressing

all our grievances and to really motivate the Development officers and to conduct the discussions

urgently for an early solution and settlement.

With Best Wishes and Regards

Yours Sincerely

R.Jayprakash

Secretary General

4


COVER STORY

GLOBAL MARKETS – on the verge of another collapse?In 2007 the world financial system suffered a near death experience. You could have been

forgiven for thinking that it was happening all over again

The conventional wisdom is that August is asleepy month for markets, with politicians,policymakers and investors all at the beachrather than at their desks. The conventionalwisdom is wrong. The credit crunch really kickedoff on 9 August 2007, when the French bankBNP Paribas suspended three of its investmentfunds that had been dabbling in US sub-primemortgages. Within a week, the Bank of England’sMervyn King was getting warnings that NorthernRock was in grave danger if the squeeze inmoney markets dragged on (not that it had anyeffect on Threadneedle Street’s policies). Overthe course of that month, the interest rate thatbanks charged each other for loans – the Londoninter-bank offered rate (Libor) – surged.Investors and commentators began talking abouta credit crunch. Traders and fund managers whowere catching some sun found themselves gluedto their BlackBerrys and on the phone to theiroffices. These were the first steps that led tothe collapse of Northern Rock in September, andultimately to a near-death experience for theworld financial system. And yesterday you couldhave been forgiven for thinking that it washappening all over again.

Consider: the Dow Jones dropping 290 pointsin one morning (which makes 1,000 points withina fortnight). The FTSE 100 closing down 3.5%,with similar carnage in Frankfurt and Paris. Andthen there’s the market in governmentloans. The interest rate on a 10-year USTreasury bond has dropped below 2.5%, whichjust shows up what a nonsense all that rightwingtalk was about “bond-market vigilantes”preparing to swoop on Washington. Whatinvestors are demanding right now is not urgentAmerican spending cuts, but a port in a storm –which means IOUs from DC, Swiss francs andgold. What they don’t want is assets associatedwith the eurozone periphery: whether that begovernment bonds from Italy and Spain, or Britishbanks (which took a pounding yesterday).

The alarming thing, as the European commi-ssion president, José Manuel Barroso, pointed

out yesterday, is that the eurozone peripherykeeps expanding. Italy and Spain are now in thefiring line. But Belgium is in the distance, too:the gap between the interest on Belgiangovernment loans and their German equivalentshas now widened out to over 2.2 percentagepoints. Given that Belgium does not have aneffective government, that fact is frightening: noone in the country has the legitimacy to drivethrough emergency policies. Incredibly, a gaphas even opened up between Frenchgovernment bonds and those issued byGermany.

This panic comes down to two things: onechronic, the other acute. The abiding worry, theone that has been eating away at markets eversince the stimulus measures of 2008-09, is thatthe western economy has run out of emergencyfuel and still lacks momentum. The immediateworry is that Spain and Italy are now borrowingmoney at unsustainable rates and may beforced into the kind of slow-motion default onsovereign loans that is happening in Greece.These stock-market drops and interest-ratespikes are largely the repricing of investor risk– amplified by the fact that few people are tradingheavily in August.

At the height of the banking crisis of 2008,policymakers had two priorities: first, prop upthe banks; second, protect the real economiesas far as possible from the impact of the crash.This time, the task is again twofold, only muchbigger: first, prop up the European banks, andensure emergency low-cost loans for Spain andItaly; second, another round of reflation.Yet thisrequires money and moreover statecraft of akind that has gone awol from European politics.The single-currency club does have anemergency fund – but it won’t be in place foryears. In Jean-Claude Trichet it also has anintransigent central banker. The markets do nothave time to wait around for either.

Financial crisis: full force of US downgrade isfelt around the world.

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US decline leaves China tipped as next economicsuperpower while pressure on US bonds is setto affect eurozone crisis

When India joined China in criticising the UnitedStates’ chaotic handling of its hefty debts thisweekend, describing the challenges facing theWhite House as “grave”, it was the clearestindication yet that the old order had been sweptaway.

Until recently the US was the unassailableeconomic superpower, and the prospect of theWhite House being bossed about by the bondmarkets – let alone by Beijing or New Delhi –was unthinkable.

But following a week when an estimated $3tn(£1.8tn) was wiped off the value of world shares,Friday’s downgrade of America’s cherished AAArating to AA+ by Standard & Poor’s is set tocause more turmoil on global markets andpotentially jeopardise Europe’s attempts to solveits ownfinancial crisis.

With currency markets, particularly the dollar,expected to come under pressure, and US bondyields almost certain to rise, this could have theknock-on effect of raising borrowing costs in theeurozone at a time when Spanish and Italianbonds in particular have seen yields soar.

This could prove to be a tipping point for thetransfer of global power from the US to its greatrival China, even though the fortunes of Asia andthe west are inextricably linked.

The boom of the past two decades in the US,the UK and much of Europe came at the expenseof an extraordinary growth in borrowing, muchof it from the Chinese and other fast-growingAsian economies, which were happy to keeppiling up Treasury bills and buying blue-chipcompanies, so long as the billions of dollars theyspent were recycled into cheap consumer goods.

At the height of the credit crunch, it seemed bothlenders and borrowers were finally getting theircomeuppance, but as the Bank of Englandgovernor, Mervyn King, has repeatedly pointedout in the past 12 months, the “global imbalances”that led to the crisis – the vast trade deficits anddebts – never went away.

Gerard Lyons, chief economist at StandardChartered, blames the turmoil of recent days ona combination of “ineffective policymakers,excitable markets and a realisation that therecovery is going to be very slow in the west”.

David Blanchflower, a former member of the Bankof England’s monetary policy committee, wentfurther: “What we’ve seen is a once-in-100-yearsfinancial crisis that will take 20 years to adjustto.”

As for the US itself, Alan Greenspan, the formerFederal Reserve chairman, said on NBC that thedowngrade was having a salutary effect on thepublic as well as on policymakers. He said: “Itgave the sense there is something basically badgoing on. And it’s hit the self-esteem of the UnitedStates, the psyche.”

But there is little glee in China about the west’stravails. Beijing has repeatedly expressedconcern about the mounting US debt burden andthe reliance of the global economy on the mightydollar. Now, the gloves are finally off. The officialnews agency has accused the US of “debtaddiction” and insisted that, as its largest creditor,China now “has every right to demand the UnitedStates address its structural debt problem andensure the safety of China’s dollar assets”.

The Chinese economist Sun Lijian, in acommentary for the People’s Daily, said: “Thebiggest victims [of the downgrade] may not bethe United States itself, but other countries thathave depended on external demand to amassnational wealth – be they Asian nations thatdepend on exporting goods, or nations in LatinAmerica and the Middle East, as well as Russia,that depend on exporting resources.”

For decades, the interest rate on American debthas been known as the “risk-free rate”, becausea US default was as close to impossible asanyone in financial markets could imagine, andall other bonds were priced relative to America’s.

Now that the markets have been forced to thinkthe unthinkable, it is not at all clear what happensnext. Erik Britton, of the City consultancy Fathom,says one possibility is that borrowing costseverywhere will rise.

“It’s the cascade effect – it’s the chain reactionthat we’re concerned about. Do other countriesretain the same risk premium relative to the US?If that’s the case, then all bond yields will go up.Everybody’s borrowing costs will go up, and thatincludes Italy and Spain, where it won’t take muchto make their situation unsus-tainable.”

And while Standard & Poor’s verdict on the US isa humiliating blow, it merely raises the distant fearof a future default, while for Italy and Spain that

6


risk is much more immediate. When the crisisreached Rome, it finally became impossible forEurope’s leaders to write off the turmoil in bondmarkets as a problem of the “periphery” – littleGreece, Ireland and Portugal.

As German officials told Der Spiegel thisweekend, Italy’s economy simply looks too bigto rescue, certainly by the current bailout fund,the European Financial Stability Facility (EFSF).

Jean-Claude Trichet, president of the EuropeanCentral Bank (ECB), has reluctantly ridden tothe rescue many times during the crisis; the ECBwill begin large-scale buying of Italian andSpanish bonds on Monday. The eurozone hasrepeatedly drawn back from the brink over thepast three years, but a default by Italy or Spainwould pose a threat to the single currency’sexistence.

Sony Kapoor, of the Brussels-basedconsultancy Re-Define, said the ECB decisionto buy bonds would not be enough; eurozonepoliticians also needed to revisit their plans forbeefing up the EFSF.

No one knows what will happen this week, butno one believes it can ever be back to businessas usual for the global economy.

US stripped of AAA credit rating by S&P over

political weakness

The US government’s credit rating has beenlowered to AA+, the first downgrade in modernUS history, despite furious lobbying

The credit rating agency Standard & Poor’s hasstripped the US of its top-notch AAA credit rating,downgrading it to AA+ and warning of furtherfuture downgrades because of political andeconomic uncertainty.

The humbling downgrade of the world’seconomic superpower came late on Friday night,after news surfaced of a furious rearguardattempt by the White House to convince S&Pthat its figures were faulty.

Remarkably, there was no immediate reactionfrom the White House after the downgrade wasmade public. But the Treasury attacked S&P’scalculations, saying: “A judgment flawed by a$2tn error speaks for itself”.

The justification used by S&P – blaming the

dysfunctional US political system for being

unable to make significant fiscal reform – will

set off another debate about US governmentspending and the shambolic process to raisethe debt ceiling that ended earlier in the week.

In particular, the news may force Republicans inCongress to reconsider measures to raiserevenue – and strengthens President Obama’shand in any plans to allow the Bush-era tax cutsto expire, raising an additional $3tn over the nextdecade.

S&P’s decision shifts long-term US sovereigndebt to the same level as Belgium and NewZealand – but below that of Canada, Australiaand France.

As a rule, a lower credit rating means higherborrowing costs for debtor nations. But becauseof the size of the US and its deep capital markets– and its crucial role as cornerstone of globalfinance – it remains to be seen exactly whatimpact the move will have when financial marketsreopen on Monday.

One big question will be the reaction of foreigninvestors, such as China, who hold 46% of USgovernment debt. But most analysts expect theshort-term impact to be muted.

“One of the reasons we don’t really think foreigninvestors will start selling US Treasuriesaggressively is because there are still fewalternatives to the US Treasury market in termsof depth and liquidity,” Vassili Serebriakov,currency strategist at Wells Fargo in New York,told Reuters.

Reaction from both politicians and financialparticipants was swift, after the initial shock ofthe late announcement wore off.

The Federal Reserve announced that USgovernment securities such as bonds would stillbe counted as AAA-rated under riskmanagement regulations, an important decisionfor insurance companies and other investors whowould otherwise have been faced with makingmassive movements in their portfolios.

Republican presidential contenders were quickto highlight the downgrade – the first since S&Pawarded AAA status to the US in 1941 – as ahumiliation for President Obama.

But S&P’s statement explaining the move blamedboth parties for the US fiscal mess – and hadharsh words for the Republican party for rulingout any taxes increases.

7


“We have changed our assumption ... becausethe majority of Republicans in Congress continueto resist any measure that would raise revenues,”S&P said.

S&P also said the budget savings agreed byCongress at the start of the week were too feeble,and blamed political weakness and instability fortriggering the downgrade:

More broadly, the downgrade reflects our viewthat the effectiveness, stability, and predictabilityof American policymaking and political institutionshave weakened at a time of ongoing fiscal andeconomic challenges to a degree more than weenvisioned when we assigned a negative outlookto the rating on April 18, 2011.

Since then, we have changed our view of thedifficulties in bridging the gulf between thepolitical parties over fiscal policy, which makesus pessimistic about the capacity of Congressand the Administration to be able to leveragetheir agreement this week into a broader fiscalconsolidation plan that stabilizes thegovernment’s debt dynamics any time soon.

The credit rating agency also said the outlookon its long-term rating was negative, warning thatit could lower the long-term further rating to AAwithin the next two years “if we see that lessreduction in spending than agreed to, higherinterest rates, or new fiscal pressures during theperiod result in a higher general government debttrajectory than we currently assume”.

S&P notified the US Treasury on Friday afternoonthat it was planning to lower the credit rating,according to government officials, and thecompany sent a draft of its analysis to the WhiteHouse.

White House officials then claimed to havediscovered a $2tn-sized holein S&P’scalculations, and briefed journalists. But it failedto wring a delay out of the agency, which wentahead with the downgrade.

Defending itself against attack by the Treasury,S&P later issued a statement flatly rebuting thecriticism, saying it “had no impact on the ratingdecision”.

Earlier this week, the other two major creditrating agencies, Fitch and Moody’s, reaffirmedtheir versions of AAA ratings after the end of thedebt ceiling fight. But Fitch also said it waskeeping its US rating under review until the endof August.

“Investors have voted and are saying the US is

going to pay them. US Treasurys are still the

gold standard,” Mark Zandi, chief economist of

Moody’s, told the Associated Press.

After a week of plunging financial markets, the

S&P downgrade will do nothing to calm nerves

of jittery investors when trading on Wall Street

opens next week. The downgrade will be followed

on Monday by a series of downgrades of debt

issued by government agencies, such as

mortgage giants Fannie Mae and Freddie Mac.

SIFMA, a US financial industry trade group,

estimates that the downgrade could add up to

0.7 of a percentage point to the yield (interest

rate) of US government bonds, increasing the

cost of servicing public debt by $100bn.

Market turmoil and the economics of self-

harm

The real problem – and tragedy – is that the US

is now following the ECB and European

authorities down the path of austerity

All money-managers’ eyes were on the US jobs

report Friday morning, after the US stock market

yesterday suffered its biggest drop since 2009,

and panic surged through financial markets

worldwide. The headline numbers were not as

bad as many had feared: the US economy added

117,000 jobs in July, and the unemployment rate

edged down from 9.2 to 9.1%. But the decline in

the unemployment rate was due to people

leaving the labour force, not finding jobs; and

the overall picture of the job market in the US is

still terrible. Just 58.1% of the US labour force is

employed – as bad as it has been since the

recession. “with the government shedding

30,000 jobs a month, we will be fortunate if the

unemployment rate doesn’t rise over the rest of

the year.”

The weakness of the US economy was part of

what sent markets into a frenzy Thursday, but it

was not the main part. The eye of the storm this

time is in Europe, and the European Central

Bank gets the credit for triggering Thursday’s

events. The ECB announced that it was reviving

its programme to buy the bonds of distressed

governments after a four-month hiatus, but

then said that this would not include Italy or

Spain.

8


This set off fears of a financial crisis, for two

reasons: first, because of the fear that the

financial markets would continue to speculate

against Italian bonds, driving interest rates up

to the point where Italy would not be able to

borrow on the markets and would have to seek

loans from the European authorities –

as Greece, Ireland and Portugal have already

done. Italy’s public debt is $2.6tn, which is more

than triple the entire economies of the other

three countries combined. The European

authorities – sometimes referred to as “the troika”

of the European Commission, European

Union and the IMF – are not yet prepared for a

“bailout” for this level of debt.

The second source of fear concerns the

European banks, who havehundreds of billions

of dollars lent to Italy and Spain. As the interest

rates on these bonds rise and their value shrinks,

these banks face problems of liquidity and

potential losses. The European banks’ problems

also contributing to fears of a financial collapse.

So why did the ECB send such a frightening

message to the markets on Thursday? The

simple answer is they are trying to force the

Italian government to do more budget tightening.

It’s another dangerous game of chicken, which

we have seen repeatedly in the eurozone. My

own view is that cooler heads will prevail and

that the European authorities will, sooner or

later, do what they have to do to avoid a financial

meltdown. They are also reportedly under

pressure from the US government to act more

aggressively to contain the crisis. And the threat

of explosive debt problems in Italy and Spain has

been exaggerated.

Unfortunately, getting past the current problems

in financial markets won’t solve the problem for

the vast majority of people in Europe and

theUnited States – economics that have a large

impact on most of the world, since the high-

income countries are still around half of the

world economy. The basic problem is that

governments in these economies have got their

macroeconomic policies wrong. In this regard,

Europe is considerably worse than the United

States: at least our Federal Reserve has taken

some positive steps in monetary policy, keeping

short-term interest rates near zero since

December of 2008 and creating more than $2tn

in money through quantitative easing.

The ECB is much more rightwing, as was on full

display yesterday; they also have short-term

interest rates at 1.5% (having actually raised

interest rates twice this year), and have been

much more conservative than the Fed on

monetary policy overall. On fiscal policy, the

European authorities are trying to squeeze the

weaker eurozone governments to cut budget

deficits even as they are in recession, or barely

growing – with more than 20% unemployment in

Spain and 16% in Greece. It’s not working, and

it’s not likely ever to work.

So now we have the sad spectacle of the United

States heading down the eurozone road to

stagnation, after our Congress, president and

most of the media have reached agreement that

reducing our public debt is the top national

priority. This despite having more than 25 million

unemployed, involuntarily working part-time, or

who have dropped out of the labour force. This

is absurd, of course: the deficit, at present, is

overwhelmingly a result of the recession and

weak recovery.

As most Americans now know, the whole “crisis”

over the debt ceiling was completely

manufactured. In fact, the US doesn’t really have

a debt crisis at all; we are currently paying just

1.4% of GDP in interest payments, a low number

by any historical or international comparison.

Our main problem is unemplo-yment, as is

Europe’s.

Even economists from relatively conservative

sources like the IMF and the head of Pimco, the

bond fund, noted after the debt ceiling bill

passed Congress, that it would likely worsen the

economy. The US economy has not even caught

up with its pre-recession level of output, and

Europe finds itself in similar straits.

Meanwhile, China has grown about 40% during

the same period of three and a half years: they

got their basic macroeconomic policies right.

That is the tragic irony of what is unfolding in

the United States and Europe: a lost decade in

the making. And it is all self-inflicted, unnecessary

and stupid.

9


THE United States has an archaic piece oflegislation, passed in 1917, which puts a ceilingon the magnitude of the debt of its federalgovernment in absolute dollar terms. (Since thevarious state governments in the US are notallowed to run fiscal deficits and hence incurdebt, the federal debt is synonymous withgovernment debt). Fixing a debt ceiling inabsolute dollar terms is extraordinarily silly fortwo obvious reasons: first, as the federalgovernment incurs fresh fiscal deficits every yearwhich add to its debt, this ceiling fixed in absoluteterms is naturally bound to get exceeded.Secondly, as prices and output rise, the federalgovernment’s revenue and expenditure alsorise, and so does its fiscal deficit in absoluteterms. Any absolute debt ceiling therefore mustget exceeded for this reason as well. The debtceiling in short needs to be revised upwardsevery so often. Not surprisingly there have beenumpteen such revisions, though, strangely,nobody has pushed for either repealing thisarchaic piece of legislation or even amending itto convert the ceiling to a percentage of the GDP.(In Europe and in India the size of the fiscaldeficit, which is a flow as distinct from debt whichis a stock, is fixed as a percentage of the GDP). The previous revision in the debt ceiling was onFebruary 12, 2010, which fixed it at $14.3 trillion.This ceiling, it was known in advance, would haveto be revised upwards again, but it was expectedto be a routine affair to which nobody paid muchattention. Since the government’s budget hadalready been approved by the legislature, whichhad given sanction to the various items of federalexpenditure, a revision of the debt ceiling toaccommodate the expenditures alreadysanctioned was expected to occur in the normalcourse. But it became a crisis in the US becausethe Republicans, who of late have moved furtherRight, and without whose consent the revisionof any debt ceiling could not be effected, begandemanding their pound of flesh, in the form ofcuts in federal expenditure, especially on socialsecurity and on programmes of benefit to thepoor such as Medicare.

AMERICA’S DEBT-CEILING CRISISPrabhat Patnaik

CLASSASPECT

The class aspect of this insistence should not

be missed. The previous Republicanadministration under George Bush had broughtabout massive tax cuts for the rich, sharplyaccentuating the post-tax income inequalities inthe US. In an effort to appease the Republicans,Obama in December 2010 had agreed tocontinue with those tax cuts, apparently in themistaken belief that, since one favour begetsanother, the Republicans would in turn do himthe favour of raising the debt ceiling, a normallyroutine affair as we have seen, without muchado. The Republicans however insisted uponeating their cake and having it too. Having gotObama to continue with the Bush-era tax cuts,they made it a condition that they would agreeto an increase in the debt ceiling only if severecuts were effected in a range of items of federalexpenditure which were of benefit to the poor.And Obama has had to bow before them. Underthe shadow of a silly piece of legislation passedin 1917, a further grotesquely regressive shiftin income distribution has been effected by thefar Right in the US which currently dominates theRepublican Party. In the process the strength ofthe far Right in American politics has increasedgreatly: it is now confident that it can push apusillanimous Obama in the direction it wants. Since in the absence of an increase in the debtceiling, the US government would havedefaulted on its payments, which is a matter ofgreat embarrassment for any government, manyin the US are happy that a solution has beenfound to such a crisis through mutual agreement,no matter what the terms of the agreementbetween Obama and the Republicans might be.But this is a naïve position which ignores thegreat damage that this compromise has done tothe US society (in the form of a sharp regressionin income distribution), to the US polity (in theform of a remarkable shift to the Right) and tothe US and world economy (in the form of anaccentuation of the world recession, on whichmore later).

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Some would argue that Obama had no choice inthe matter, that to avert the crisis which wouldhave ensued if the US government haddefaulted on its payments, he had to bow to theRepublicans. But this is erroneous. Quite apartfrom the fact that he had been pusillanimous allalong, especially in continuing with the Bush-eratax-cuts, he turned out to be pusillanimous evenwhen it came to the crunch. He did have anobvious way out, which was suggested by many,but he did not follow it. The way out was asfollows. While government bonds are counted asgovernment debt, money issued by thegovernment is not. The Federal Reserve holds$1.7 trillion of government bonds at the moment,which it has been buying in its effort to lowerlong term interest rates (for stimulating arecovery). This sum is counted as governmentdebt and hence figures in all calculations aboutwhether government debt is within the statutoryceiling. If the government merely substitutesmoney printed by it for government bonds in theFederal Reserve Board’s portfolio, then its debtfalls well within the ceiling (since the estimatedexcess over the ceiling is $1.5 trillion which isless than the $1.7 trillion of government bondswith the Fed). Government-printed money in the US is not anew idea: Abraham Lincoln had printed notescalled “Greenbacks” (the term is still used incommon parlance to refer to the dollar), preciselyin a similar situation when the federalgovernment had got into a debt crisis becauseof financing Civil War expenditure. True,substituting government notes for governmentbonds (it does not matter to the Fed becauseinterest rates on government bonds are near-zero, and much of the Fed’s interest earningscome to the government treasury anyway),appears to be a phoney solution; but since thedebt-ceiling problem is a phoney problemanyway, a phoney solution is all that it requires,and this solution is quite enough to counter thearm-twisting by the Republicans).

STRUCTURAL REASONS

The reason Obama did not do it, is structural; itis not because of some personal failure on hispart, as Liberal writers have been suggesting.

Obama’s apparent pusillanimity in other wordsis not a character trait but a consequence of hisbowing to the pressures of finance capital. A bigdebate has been on for some time inthe US about the size of the fiscal deficit. Whilemany progressive economists have been rightlyemphasising that in the midst of a recession alarge fiscal deficit is necessary for stimulatingthe economy, and that it cannot possibly do anyharm, not even on the inflation front (since theinflation in the US, not alarmingly high in anycase, is not caused by excess demand), thefinancial interests and the media controlled bythem have been systematically wanting a cut inthe fiscal deficit. This is hardly surprising: financecapital is always opposed to any form of Stateactivism except that which promotes its owninterests. It propagates not just the view that whatis good for finance is good for the economy, butan even stronger version of it: only what is goodfor finance is good for the economy. For it toadmit that the interests of the economy can beserved by government action that is not aimedat promoting its own interests, is to undermineits own raison d’etre. The phoney problem of thedebt ceiling has been used to effect a real cut inthe fiscal deficit. And that too without affectingthe interests of the rich, the reversal of whosetax-cuts had already been carefully removed fromthe agenda earlier. A fiscal deficit can be curtailed either throughgarnering larger tax revenue or through effectingexpenditure cuts. How it is curtailed, and uponwhom the impact of tax increases andexpenditure cuts falls, are important issuesaffecting the class distribution of income. Financecapital not only wants a cut in the fiscal deficit,but a cut effected correctly in class terms (fromits point of view). Obama has done both to itssatisfaction. No doubt he was goaded by theRight, but he could not stand up to financecapital, because his own election was fundedlargely by that bastion of finance capital, WallStreet. Underlying what Liberal writers, quite

rightly, see as a shift to the Right in US politics,

is the increase in the power of finance capital.

Ironically, a good deal of the increase ingovernment debt in the US has been caused bythe government’s effort to bail out banks fromthe financial crisis they had collectively brought

11


upon themselves, and also by the Bush tax-cutsfor the rich which, themselves not particularlyanti-recessionary, could not be reversed evenas the government had to work out a stimuluspackage against recession. But this veryincrease in government debt imposed by the richand the financial interests, has been used bythe same interests to bring about cuts in welfareexpenditures for the poor! The fact that this would worsen the recession inthe US, and hence in the world capitalisteconomy as a whole, has been rightlyemphasised by many writers. Countering arecession requires increased spending. Sincethe US cannot suddenly expand its net exports(and if it did, then some other countries’recession would be accentuated since it wouldhave to be based on a “beggar-my-neighbour”policy), its domestic expenditure has to increase.Since neither private consumption expenditurenor private investment are showing any signsof a recovery (they would recover once the

economy begins to recover), the increasedspending will have to come from the government,and, in the absence of taxes upon the rich, willhave to be financed by a fiscal deficit (taxes onthe poor nullify the expansionary effects ofgovernment spending). Curtailing the fiscaldeficit, and that too via cuts in expenditures forthe poor, will therefore aggravate the recessionin the US, and hence the world economy. It may be asked: why is finance capital insistingupon such a course which is ultimatelydangerous for the system as a whole, since itconfronts the system with both greater popularantagonism and a worse crisis? The reason isbecause capitalism is not a planned but aspontaneous system. This spontaneity is whatmakes it doomed. Paraphrasing Lenin we cansay that if capitalism could do all those thingswhich were reasonable and humane, then itwould not be capitalism. [The author is a noted economist and former chairman of

Planning Board, Kerala ]

Newsbulletin wishes

all its readers

and

well wishers

a

Happy Id-ul-fitr&

a joyful

Onam

12


Sovereign guarantee for all policies issued

by LIC will continue

ET Bureau Jul 27, 2011

NEW DELHI: Sovereign guarantee for all policiesissued by Life Insurance Corporation (LIC) willcontinue, a government official said, allayingfears of millions of clients of the country’s largestlife insurer.

The government has decided to drop a clausefrom the Life Insurance Corporation(Amendment) Bill 2009 that suggested limits onthe sovereign guarantee available to thecountry’s largest life insurer.

“It has been decided to continue withgovernment guarantee to LIC,” the official toldET.

The government has also decided to retain aclause that allows the insurer to regulate theterms and conditions of its agents and therecruitment procedure for employees andagents. The provision gives the insurer powersto decide on the commission benefits of over 14lakh agents.

The finance ministry has circulated a draftcabinet note on the changes to be made to thelegislation before it is taken up for approval inthe monsoon session of Parliament.

LIC, which is governed by a 50-year-old Act, hasgovernment backing for all its policies. Thepublic-sector behemoth had 65% market sharein first-year premium and 70.8 % share in totalpolicies in 2010. The insurer sold over 37 millionpolicies in the last fiscal.

The relaxation in sovereign backing comesdespite the government tightening conditionsunder which such guarantee can be madeavailable.

The Standing Committee on Finance hadstrongly opposed the provision in the Bill thatempowered the government to limit the extentof sovereign guarantee.

MEDIA WATCH

The amendment Bill was reintroduced by thefinance minister after it lapsed following thedissolution of the previous Lok Sabha.

The dropping of the clause, seen smootheningthe passage the Bill in Parliament, comes amidstiff opposition from private-sector players. Statebacking for LIC has also been criticised by theInsurance Regulator Development Authority fornot allowing a level playing field.

In the Union Budget for 2011-12, the governmentdisclosed for the first time the total financialguarantees given, in order to present a clearerpicture of its financial position.

The clause allowing the insurer to frame rulesfor its agents and the method and decide onthe recruitment process of staff had not foundfavour with the parliamentary panel andinsurance agents.

However, the official said, “The corporationshould have powers to decide about the welfareof its agents and employees.”

A petition was filed in the Supreme Courtchallenging the bill but was rejected by thecourt.

The bill seeks to raise the capital base of thestate-owned insurer to 100 crore from 5 crore,bringing it on a par with private insurers, both inlife and non-life segments, which are requiredto have a minimum capital base of 100 crore asper IRDA norms.

The bill also seeks to allow LIC to allocate 90%or more such surplus - excess of assets overliabilities - for life insurance policy-holders andthe rest to a separate account maintained byLIC.

The account would be ut i l ised by thegovernment for any purpose it decides on,while the rest would be paid as dividend. Atpresent, the insurer is required to set aside atleast 95% of the surplus, while rest goes to thegovernment.

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Race for LIC top job in last lap, 2 shortlisted

Mumbai August 06, 2011,

The race for the top job at the country’s largestlife insurer, Life Insurance Corporation (LIC), hasentered its last lap. The search committee forthe chairman’s post has shortlisted twocandidates.

According to sources, Sushobhan Sarkar, whois currently an executive director and headsLIC’s international operations, has beenshortlisted along with the corporation’s interimchairman D K Mehrotra.Mehrotra was appointedacting chairman at the end of May for threemonths, till end-August.

Sources say the government is looking for acandidate not linked with LIC’s investments asthe Central Bureau of Investigation (CBI) is stillprobing those made by the corporation in 2008and 2009. Due to the probe, the governmentdemoted T S Vijayan, the then LIC chairman,as a managing director. Thomas Mathew, whowas also interviewed for the chairman’s post, hadbeen looking after investment since Vijayanbecame chairman.

According to sources, Sarkar came into the fraydue to his clean image during his tenure as thehead of LIC Mutual Fund and the investmentdepartment.

There is a precedent in LIC that an executivedirector has been elevated to the chairman’spost. In 2000, G N Bajpai, who was an executivedirector, was elevated to the chairman’s post.

Early this year, after a committee constituted bythe finance ministry found flaws in investmentsmade by LIC during 2008 and 2009, the CentralVigilance Commission recommended a probe.

The uncertainty for the top post arose afterVijayan was denied extension when his termcame to an end on May 2 and he was demoted.

Subsequently, Vijayan went on leave and is yetto resume his duties.

The government had formed a committeeheaded by economic affairs secretary R Gopalanto select the next chairman.

Insurers can’t walk out of contracts mid-term : IRDAJul 30, 2011,

MUMBAI: In a move that will benefit healthinsurance customers, IRDA has said thatcompanies cannot cancel insurance policies mid-term. The move, sources say, is in response tocomplaints from group health insurancepolicyholders whose contracts were terminatedbefore completion of one year because of highclaims.

In a circular issued to all companies this week,the Insurance Regulatory and DevelopmentAuthority said that no policy, either fresh orrenewal, can be marketed which has acancellation clause contrary to the regulations.Regulations allow cancellation only if there is afraud, misrepresentation or non-disclosure ofmaterial fact from the insured.

The industry, however, says that it would beunusual not to have a cancellation clause.“Historically and internationally it has been thepractice to have a cancellation facility availableto both the insurance company and the insuredafter giving them enough notice to makealternative arrangements,” said G Srinivasan,chairman, General Insurers Public SectorAssociation, and head of United India InsuranceCompany. He said that the cancellation clausewas important in cases where the cover wasprovided on the basis of reinsurance supportsince the reinsurers also include a similarclause.

Pavanjit Singh Dhingra of Prudent InsuranceBrokers said the cancellation of policies byinsurance companies due to adverse claimsexperience is a breach of trust of policyholdersrs.In the past, there have been cases where in abid to increase their topline , insurers haveacquired group policies at very a low rate.However, after burning their fingers with highclaims they used the cancellation clause as anescape route.

“It is incumbent upon insurers to do theirhomework and proper underwriting and carrythe risk for the duration of the contract. What isthe purpose of insurance if the insurer can walkaway from the risk at his discretion? At timesinsurers have been reckless in underwriting

14


policies and have then cancelled them or triedto renegotiate terms during the policy periodwhich is quite unfair and we welcome thismeasure to protect the interests of policyholders,” said Dhingra.

Investors dump Ulips, return to tried-&-tested products

New investors appear to be switching awayfrom unit-linked life insurance plans (Ulips)to conventional products due to the uncertainreturns from the stock markets.

A senior official of the Life Insurance Corporationof India (LIC) told MAIL TODAY that given thecurrent volatility in the stock market, as manyas 80 per cent of the new investors are optingfor the public sector company’s conventionalproducts.

LIC’s Jeevan Saral accounts for 30 per cent ofthe total insurance products sold, while JeevanAnand, also a conventional product, has a 25per cent market share.

Investors buying Ulips appear to be getting araw deal. Although the returns on these productsare subject to stock market risk, gullible investorstend to lose sight of this crucial fact wheninsurance agents launch their hard-sell.

M.K. Kutty is a typical example. The retiredprivate sector executive invested Rs 3 lakh overa period of three years in a ULIP of Kotak LifeInsurance with a lock-in period of five years.When he opted out of the scheme recently aftera period of three years, he found to his horrorthat the company returned him only Rs 2,81,709.

Enquiries with the company revealed that theloss had occurred due to fluctuations in the stockmarket. Kotak executives then asked Kutty toinvest the money in a “better” scheme that theywere now offering but he decided to stay away.

Kotak Life did not respond to a call asking formore details about the case.

According to senior LIC executives, aconventional insurance product that is not linkedto investments in the stock market gives a returnof six to eight per cent a year.

If the Rs 3 lakh had been invested in aconventional policy, the amount would have goneup by Rs 36,000-48,000, instead of declining invalue.

In the case of Ulip schemes, insurance firms alsocharge an administrative fee and follow it up withmonthly charges for administrative expenses,which are deducted from the investor’s account.If the policy is surrendered before the lock-inperiod another three per cent is deducted by thecompany.

According to industry sources, the charges ofprivate sector insurance firms are higher as theyhave to cover up for their higher operating costs.

The average salary of a middle-rung LIC officialranges from Rs 5-6 lakh a year, while salaries oftheir counterparts in private sector insurancefirms is around Rs 15-20 lakh.

Life insurance companies premium incomeslips 28%, non-life cos see 22% growth in Q1ET Bureau Jul 29, 2011

KOLKATA: The life insurance segment hasreported a 28% fall in premium income duringthe first quarter of 2011 compared with its non-life counterparts which registered a robust 22%growth during the period, according to datacompiled by Irda. Growth in premium income fornon-life companies during the previouscorresponding period was a shade lower at 21%.

The numbers indicated that public sector insurers- New India Assurance, United India Insurance,Oriental Insurance and National Insurance -registered a collective growth of 19% during thequarter against a 22% growth in the previouscorresponding period.

In the life insurance sector, LIC witnessed a 29%decline compared with private life insurers’ 27%fall. Experts feel the introduction of a host ofguidelines for Ulips and the subsequentwithdrawal of policies last September are showingtheir gradual effects on the segment.

Private companies in the non-life segment,including the three standalone health insurers,registered a 27% growth in Q1 against 21% inthe previous period. The only company thatregistered a fall in premium income is AgricultureInsurance of India (-2%). Nevertheless, privatecompanies now command close to 43% of thetotal market share while public sector companieshold 56%. The rest belongs to Export GuaranteeCorporation and Agriculture Insurance of India.

15


ORGANISATIONAL ROUND UP

Our National Vice President respected Com.K.P. Singh got his retirement from the post ofDev. Officer after rendering 37 years of service on 30.07.2011. On this occasion the Khurja B.O. of Aligarh division has organized a grand farewell function atBranch premises where along with all Dev. Officer , employees, agents, officers, AIP NFIFWICom. G.Nagesh, Com. Gen Shri R.Jaiprakash, Zonal Sec WZ Com. Mihir Lokandwala ,Res SecDELHI Com.Dr.Vijay Kaushik, Zonal President NCZ Com. DRS Raghav, Zonal Sec. NCZ Com. VIVEK

SINGH ,ZVP Com.Sanjeev Saxena, RM (hi)NCZ Com. J.S Chauhan,RM NCZ Com. J.P.Agrawal ,MMAligarh Com. P.N Vishwakarma,DP&DSAllahabad Com. Arun Tiwari & Com. Radhakant Mishra,DPGorakhpur Com. K.K.Srivastava,DP &DS Faizabad Com. R.P.Tiwari & Com. Sunil Mohan DP&DSAligarh Com. Arun Jain & Avanish Jain,DVP Aligarh Com. Mukesh,DP&DS Lucknow Com.

R.P.Dubey & Com.GyanendraPratap,ExZSNCZ Com.J.P.Singh,VP Lucknow COM

N.Jhingaran,Joint Sec Lucknow Com. V.P.SinghDP& DS Merut COM. P.K.Tiwari &

Com. Rampal Singh attended the function.

Again on 31 July Aligarh Divisional organization has organized the farewell function in Mathurain which along with all Dev.Officers of Aligarh Division. We thank Com K.P.Singhji for the services herendered to NFIFWI and We wish Com. K.P. Singhji a happy and healthy retired life.

l l l l ll l l l ll l l l ll l l l ll l l l l

The Biennial general body meeting of Shahdol Division of CZ was held on 7th Aug 2011.

Com.S.Mukerjee and Com.Ajai Vijra were elected unanimously as President and General

Secretary respectively.

l l l l ll l l l ll l l l ll l l l ll l l l l

The Biennial general body meeting of Haldwani Division of NCZ was held on 7th Aug 2011. Com.J.M.S.

Parhyal and Com.R.C.S.Rana were elected unanimously as President and General Secretary

respectively.

ORGANISATIONAL COMMUNICATIONS

Text of SMS send by Secretary General

08.08.11 : The Biennial general body meeting of Shahdol Division of CZ was held on 7th Aug 2011.Com.S.Mukerjee and Com.Ajai Vijra were elected unanimously as President and Secretary respectively.

08.08.11 : The management has issued the car review circular granting 20% relaxation. Circular issent through ZS. Members are requested to give your feedback.

01.08.11 : Our veteran leader and former Zonal Secretary of Central Zone Com.I.S.Bharatiji suffereda heart attack on 29th July. He is out of danger but has to undergo open heart surgery. We pray Godfor his good health and speedy recovery.

30.07.11 : Our All India Vice President Com.K.P.Singh is retiring from the services of LIC after asuccessful long innings. He has been a committed comrade and contributed his might for the causeof NFIFWI in various capacities. We salute his services and wish him a very happy and peacefulretired life. We thank his family members for their support and understanding.

25.07.11 : The NEC will be held at Amritsar, NZ on 13th,14th & 15th of September 2011. Stayarrangements for NEC members will be from 12th Sept afternoon to 16th Sept morning. CS will befrom 11th evening 5pm to 9pm and on 12th September 10am to 6pm.

16


Corporate Social Responsibility (CSR) is aconcept whereby organizations takeresponsibility for their impact on society and theenvironment. Kotler defined corporate socialresponsibility “as a commitment to improvecommunity well-being through discretionarybusiness practices and contributions ofcorporate resources”. CSR is one of theemerging trends and it is becoming increasinglyaccepted in business circles, to the extent thatCSR is most often implemented as a keystrategy. The first companies which carried outsocially responsible actions did so underpressure from the NGOs and society.

Public relations departments used to beresponsible for carrying them out as the maincontact point with stakeholders. Today thesituation is changing – with CSR involving notonly the PR department but becoming part ofthe everyday management of each and everydepartment. CSR is not only about charity, butit belongs to the core business of a companyand an integral part of doing business and isforced to consider economic, technological,environmental, socio-cultural, and politicalconsiderations for its sustainability. In the lastdecade, there was increased corporate giving,increased corporate reporting on socialresponsibility initiatives; and an apparenttransition from giving as an obligation to givingas a strategy.

According to KPMG, a U.S. professional servicesfirm and a review of Fortune 500 websitesindicates that majority now have special reportson giving, with sections typically labeled‘Community Development’, ‘CorporateCitizenship’ and so forth. Many of these sectionsprovide a lengthy detail on topics like annualgiving amounts, philanthropic priorities, majorinitiatives, employee volunteerism and

CSR FOR INSURANCE SECTOR

Vepa Kamesam and Dr. V. Padmavathi assert that while there is a role for every

corporate in improving the well-being of the society, insurers should put in

their best efforts to identify and fulfill the shortcomings within their reach to

contribute towards societal improvement.

sustainable business practices. The companieshave on aggregate, identified different themesfor their CSR initiatives. Of these, communitywelfare tops the list, followed by education, theenvironment, health, aswell as ruraldevelopment.

Viewing globally, the United States has had astrong tradition of corporate philanthropy.Corporate social programs have always beenvery popular there. The government is a quietbut key player especially in the regulation ofCSR. The USA - Community Reinvestment Act(CRA) regulates CSR in financial servicessector. The CRA sets minimum requirements,monitors compliance; and incentivizes throughtax credits. It can be said CSR is fairly developedin US. Waren Buffett, the chairman of BerkshireHathaway Inc., and Bill Gates, the chairman ofMicrosoft Corp., are expanding the philanthropiceffort by meeting billionaires and they’ve beenasking their peers to sign the “Giving Pledge,”which promises they’ll give the majority of theirfortunes to charity. With their efforts the numberof participants has risen to 57 in the U.S. sincethe projectwas announced in June. There hasalso been a Minister appointed for CSR (inDepartment of Trade and Industry) since 2000in the United Kingdom. CSR Asia, the Asia PacificCSR Group shows the status of CSR in Asia andAsia Pacific countries. Insurers also occupied aposition among the top 20 donors in internationalscene.

Their efforts are leading to address issues onthe environment, education and human rights.CSR is not new to India; companies like TATAand BIRLA have been imbibing the case forsocial good in their operations for decades longbefore CSR become a popular cause. CSR iscoming out of the purview of ‘doing social good’and is fast becoming a ‘business necessity’. The‘business case’ for CSR is gaining ground and

17


corporate houses are realizing that what is good

for workers - their community, health, and

environment is also good for the businesses.

Indian companies are nowexpected to discharge

their stakeholder responsibilities and societal

obligations, along with their shareholderwealth

maximization goal. Nearly all leading corporates

in India are involved in CSR programs in areas

like education, health, livelihood creation, skill

development, and empowerment of weaker

sections of the society, medical camps, raising

awareness on protecting and enhancing the

environment. Notable efforts have come from

several corporate entities as also by the

member companies of Organization of

Pharmaceutical Producers of India (OPPI). The

2010 list of Forbes Asia’s ’48 Heroes of

Philanthropy’ contains four Indians. India has

been named among the top ten Asian countries

paying increasing importance towards corporate

social responsibility (CSR) disclosure norms.

There are several bodies now emerging on the

Indian scene that focus on issues of CSR. The

India Partnership Forum of the Confederation

of Indian Industries (CII) is an active proponent

of CSR. As a step towards promoting CSR and

generating awareness and interest amongst

young future business leaders, the British

Council launched the ‘CSR Network’ in

partnership with several management schools

in India. The EU-India Network for CSR acts as

a forum for exchange of information,experiences

and best practices between European and Indian

companies on corporate responsibility.

The central government is also working on a

framework for quantifying the CSR initiatives of

companies to promote them further. According

to Minister for Corporate Affairs, Mr Salman

Khurshid, one of the ways to attract companies

towards CSR work is to develop a system of

CSR credits, similar to the system of carbon

credits which are given to companies for green

initiatives. In fact, the Ministry of Corporate

Affairs had brought out a set of voluntary

guidelines in December, 2009. Following are the

core elements of those guidelines:

Care for all stake holders: It includesshareholders, employees, customers, suppliers,project-affected people, society at large

Ethical functioning: The governance systemsshould not engage in business practices that are

abusive, unfair, corrupt or anti-competitive.

Respect for worker’ Rights and Welfare:

Providing safe and hygienic workplaceenvironment, access to training anddevelopment of necessary skills for career

advancement, on an equal and non-discriminatory basis. They should not employchild or forced labor. They should give freedom

of association and right to collective bargainingof labor and they should have an effectivegrievance redressal system.

Respect for human rights

Respect for Environment: It suggests thatcompanies should take measures to check andprevent pollution: recycle, manage and reduce

waste, should manage natural resources in asustainable manner and ensure optimal use ofresources like land and water, should proactively

respond to the challenges of climate change byadopting cleaner production methods, promotingefficient use of energy and environment friendly

technologies.

Activities for social and inclusive development:

These could include: education, skill building forlivelihood of people, health, cultural and socialwelfare etc., particularly targeting at

disadvantaged sections of society.

To implement CSR strategies, companies are

advised to partner with local authorities,associations and are advised to allocate specificamount in their budgets related to profits after

tax for CSR activities. They are also asked todisseminate information on CSR policy, activitiesand progress to all their stakeholders and the

public throughwebsite, annual reports andmedia.

1. Role in awareness generation: TheInstitute of Chartered Accountants of India (ICAI)

18


a statutory body in India that sets accounting

and auditing standards for the corporate sector,

is working on a new set of rules on CSR, making

it a must for companies to report on social,

environmental and economic initiatives. In 2009,

Government of India made it mandatory for all

public sector oil companies to spend two per

cent of their net profits on CSR. The Department

of Public Enterprises (DPE) has prepared

guidelines for central public sector enterprises

to take up important CSR projects to be funded

by 2-5 per cent of the company’s net profits. In

spite of having such life size successful

examples, it is to be agreed that CSR in India is

in a very nascent stage. Especially in the

insurance industry though there are some

initiatives by some insurance companies in line

with CSR, there is a lot of scope for improvement

and active participation. Being a service industry,

insurance underpins a healthy and prosperous

society, enabling businesses and individuals to

thrive, safe in the knowledge that problems can

be handled and risks carefully managed.

Though not exhaustive, the following areas may

be listed for fulfillment of the role of insurance

sector in corporate social responsibility with a

business strategy.

The following action plan serves both as CSR

and promotes long-term business interests.

Getting involved in Improving educational and

training institutions, relevant to the company.

Sponsoring awareness generation / Spreading

information on various hazards and the steps

to be taken for mitigating

Making people aware of their vulnerabilities and

the need for prevention, mitigation and

preparedness measures

Research and development of products for

suiting the needs of the customers

Focusing on need based selling instead of target

based selling

2. Role in disastrous risks:

India has been traditionally vulnerable to naturaldisasters on account of its unique geoclimaticconditions. In view of India’s high vulnerabilityprofile, the recurrent phenomena of a range ofgeophysical as well as hydrometeorologicalhazards impact millions across the countryleaving behind a trail of heavy loss of lives,property and livelihoods. In many areas of thecountry, disaster losses tend to outweigh thedevelopment gains. Insurers play a key role inproviding the requisite risk transfer instruments.India’s general insurance market is at a nascentstage and is considerably underdeveloped inspite of the fact that it has a huge potential. Yetcatastrophe insurance purchasing is insufficientas major insurers do not have accurate up-to-date accumulation of data.

Nearly two million Indian farmers have had accessto index insurance programs since 2003. But inorder to achieve their full potential, applicationsof index insurance will need to scale up to reachmany more people. The action plan for thesuccess of the index insurance is as follows:

Providing climate-friendly and climate-proofproducts and services

Partnering with government, suppliers and otherstakeholders in disaster risk management.

Building on existing dialogue with consumers

Offering contracts across many states, for manycrops, covering a range of risks, from excessiverainfall to extreme temperatures through publicand private programs

Formation of a group of insurance companiesand organizations, committing them to takeaction to reduce climate change risk, supportclimate change awareness and lead the way inanalyzing and reducing risks

The plan above helps in more ways than one ithelps in removal of the cause, reduction of theseverity of the event, mitigation of consequencesand their impact and facilitates internal-externalsocial funding interface.

19


3. Role in AntiMoney Laundering

4. Role beyond commercial interests:

Conclusion:

As an insurer, it is his responsibility to establish

identity of the customers properly to take care

of the AML guidelines. While large amounts are

paid as premiums, insurer has to comply with

AML guidelines. Reduction of crime through

controlling money laundering enhances insurers’

role in social responsibility in the society.

Insurers can design products and extend

insurance covers to supplement the Government

social security schemes for the vulnerable and

weaker sections like women, old aged,

unemployed, rural poor of the BPL families.

Further, though it is not directly related to their

core business, they can establish their brand

image with the following activities via fulfilling their

social responsibility.

Some of them are

Maintaining traffic roundabouts

Maintaining parks for children and elderly

Advertising for socially important causes

Promoting road safety

Taking village development projects

Deforestation

Building effective bridges amongst all important

stakeholders for the successful implementation

of CSR initiatives.

Floating foundations to conduct CSR projects

This kind of activities helps in building a positive

image and encouraging social involvement of the

company’s employees who in turn develop a

sense of loyalty.

Demographers contend that the population of

India will overtake that of China by 2026 to bethe world’s most populous nation with almost 1.5billion people. The additional demands for food,water, housing, education, and healthcare arethe major challenges for CSR in India to have ameaningful impact on society in the comingdecade. As per Vision 2050 project of the WorldBusiness Council for Sustainable Development(WBCSD), businesses-as-usual cannot getsustainability and prosperity without addressingthe problems of degradation of the environmentand social stress. The challenges of implemen-tation of CSR activities can be addressed withthe following steps.

The involvement of small and medium enterprises(SMEs), Synergy of corporate houses and NGOs,Public Private Partnerships, Government’sEncouragement in rewarding and recognizingcorporate house CSR activities, Introduction ofCSR as a subject at business schools and incolleges and universities.

Specific to the insurance sector to mention, whenthe insurer starts insuring the rural poor as perthe directives of IRDA, it becomes its concern toimprove the conditions of rural poor. It is commonthat while issuing the policy, the insurer assessesthe risks and rates it depending upon the riskfrequency and severity. Malnutrition relatedproblems like underweight, tuberculosis and otherrelated diseases; hygiene, sanitary conditions,water borne diseases, mosquito related diseases;frequent pregnancies and related problems;education and number of children are some ofthe factors to be taken into consideration to ratethe risk in the rural areas. The suggestion is thatinsurers with the help of volunteers/NGOs canpersuade the rural authorities, and they will takeup the issues and improve the environment.When that happens, the premium too can getreduced in the next year. The insurer can donatea part of the premium. This type of involvementcan be extended to other type of risks and thenthe insurance companies truly become theinspectors and the IRDAthewatchdog.

[Vepa Kamesam is Managing Director,

Institute of Insurance and Risk Management

(IIRM),Hyderabad; and Dr. V. Padmavathi is

Research Coordinator and Faculty, IIRM.

Courtesy: IRDA Journal]

20


Circular issued by LIC instructing Branch Offices

not to include PLLI in Development Officers income

Edited, Printed and Published by : R. Jayprakash, Editor, News Bulletin of Insurance Field Workers of India on behalf ofNational Federation of Insurance Field Workers of India

from Kalvit Bhavan, S3, 2nd Floor, Capital Heights, Opp. RSP Office, Plamoodu, Pattom P.O., Trivandrum - 4Printed at SB Press, Trivandrum

Licensed to post without pre-payment : KL/TV (N)WPP/166/2010-12

Retirement function of Com. K. P. Singh, Vice President on 30th July 2011

Felicitations by National President Com. G. Nagesh

Com. K. P. Singh and wife felicitated by a lady comrade

Felicitations by Secretary GeneralCom. R. Jayprakash

Development Officers at the function

f i n a ncialma l rk b e o t l s g - nfifwinfifwi.com/magazine/2011.008.pdf · b) review of fca,...

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