Month: August 2014

Lets talk insurance Mr O’Brien.

Most middle class kids in India have grown up watching Bournvita Quiz Contest. And many idolized Derek O’Brien. I follow Mr. O’Brien on twitter for a perspective into what TMC is thinking. While I do not respect TMC’s views on many issues I have immense admiration for Ms. Banerjee’s tenacity.

Today I read Mr. O’Brien’s post “Why the TMC opposes FDI in Insurance”. ( ) I expected some good questions on this issue instead what I found was a medley of questionable claims and half truths.

I quote here from the said blog “Insurance and pensions are crucial for the well-being of middle-class families. Such modes of savings are the ultimate nest egg for ordinary people. Ideally, the funds for these should be invested in mechanisms that have sovereign guarantees – government bonds, municipal bonds, fixed deposits and the like.

International insurance companies prefer investing in the stock market and in mutual funds, and in a sense gambling. “Actually every financial adviser with a modicum of integrity will always advise-to never mix savings/investment with insurance. It is this process due to which a lot of poor Indian families tend to have savings with low returns and insurance with low covers when age and assorted problems hits them.

That apart let’s go onto the meat of the argument about the working of insurance companies. Mr. O’Brien equates stock markets with gambling. While this makes for good rhetoric it is a complete lie. For example when Mr. O’Brien asked kids in BQC “Which is the oldest stock market in Asia?” he never listed a gambling den was not among the four options. So Sir, were you lying to students then or are you lying to voters now?

Now he also states that ideally Insurance companies should invest in mechanisms with sovereign guarantees, I would like to point out that all I repeat all these instruments are traded as much as equities. Since he refers to the latest market crashes it is important to note that countries like Greece, Portugal and others suffered not because of stock market crashes but rather because their GOVERNMENT bonds collapsed and in many cases these crashes occurred due to mindless populism the kind of which the TMC is famous for.

Importantly most insurance company policies are regulated so they can’t invest more than a certain amount of critical policies in equities and have to keep the rest in bonds and sovereign funds. In fact if and when India undertakes reforms, which the TMC opposes, the demands for these bonds will go up thus helping those very people TMC claims to fight for.
Insurance companies by their nature itself take on liabilities and to fulfil the same they invest in markets. If you want them to invest only in Government bonds how can they fulfil their very objective?

But significantly the largest insurer and the one to whom the poor of India turn to –LIC is the largest player on the stock market. Yes Mr. O’Brien LIC which takes money from the middle classes owns large stakes in many companies through the same evil stock market.What Mr. O’Brien should be concerned about is that the last government (including the time the TMC was part of it) used the LIC to buy government issued stocks in the name of disinvestment. The UPA disinvested some shares from PSU, but there were no takers in the market. To avoid failure of these initiatives UPA forced LIC to buy these shares at an inflated value which no one was willing to buy. Yes Mr. O’Brien money of middle class Indians was used to buy high valued stocks so government could balance its books. Now tell me when are you protesting this? NDA government is now planning to sell some portion of ONGC and other companies if the same repeats please oppose it—That will be supporting the poor.

Finally Mr. O’Brien Bengal recently witnessed the Saradha-kand which broke many poor families. There are many such ponzi schemes which are designed to cheat poor people. I am not sure how such schemes are regulated even you I am sure have no idea if they invest in equities or bonds or paintings. Banter aside let’s talk about how we can send banking, investment instruments to the poorest of the poor such that they get returns better than inflation without risk of being cheated. That’s a blog I want to read about from the people who purport Maa Maati Maanush.

I know that our insurers are not saints-most of them don’t necessarily put client’s interests at the top rather their sales. Even then I would rather keep my many with an HDFC rather than a Saradha; wouldn’t you?