People’s money for people’s welfare

Sixty years ago, on January 19, 1956, Union Finance Minister CD Deshmukh initiated a major step in the life assurance sector. Some 243 insurance companies were taken over through a presidential ordinance in a swift and secret operation. Deshmukh was the architect of nationalising life insurance companies.

The very next day, when head offices of the life insurance companies opened for business, the custodians selected by the Centre from the CEOs of life insurance companies, stepped into the offices assigned to them with their appointment orders. They took over the companies by calling for the minutes book, and drawing a line and signing at the end of the minutes of the last-held board meeting. The takeover was complete.

In the next eight months, two legislations were passed — one for nationalising life insurance and another for setting up a single monolithic institution with which private life insurance companies would be merged.

This writer was working at that time with a life insurance company in Bombay (Mumbai) — the Bombay Life Assurance Co., a medium-sized company by the standards prevalent in the insurance industry in that era — as a personal assistant to the CEO. The CEO had been appointed as the custodian of three insurance companies. I was asked to work under him at his new headquarters.

The period from January 20 to September 1, 1956, was hectic. Every weekend, there were meetings of the joint custodians in Mumbai presided over by HM Patel, finance secretary and the chairman of LIC. The meetings were held in the premises of the Oriental Life office.

Statistics and details were quickly collected of residential properties and commercial properties held by insurers throughout the country and of their administrative and managerial staff at all levels. These statistics gave the government vital information not only about the properties but also about the valuable human resource material.

Senior officers of the industry were selected to be zonal managers, executive directors and division heads. The government was gearing up on a war-footing to start the new organisation — LIC — and the ‘appointed day’ was fixed as September 1, 1956.

The time available was indeed very short. Determined coordination between the finance ministry, the regulator, and the management and staff of life insurance businesses enabled the achievement of that goal.

The bulk of the staff of the life insurance companies was concentrated in metro cities such as Mumbai, Kolkata, Chennai and Delhi. Large numbers of personnel were needed to man the branches, divisions and zonal offices.

There was remarkable cooperation from the staff. They accepted transfers without demur, receiving a month’s wages as a small incentive to compensate for the dislocation. The government appointed a high-powered committee under S Lal, ICS (retd) to rank the senior officers in the respective companies they served.

For the field staff who had myriad designations, committees went through their fixation in appropriate ranks. Senior staff were given their positions as section heads or superintendents on the basis of their length of service and by duly appointed regional committees. The structure of the 243 companies varied widely in every respect, namely organisation, operations, procedures and systems, making integration of the offices a Herculean task.

On September 1, 1956, as against 97 centres in the country in which private insurers operated, LIC started with a wide, all-India network of over 200 branches, 33 divisions and five zonal offices.

Within eight months, all the necessary forms and stationery required for the operation of a big life insurance office with an all-India presence had to be arranged and this was done with remarkable speed.

Unfortunately, Deshmukh was not in office when the LIC was inaugurated as he had to resign on an entirely different, regional, political issue. The work of completing this mammoth assignment was taken over by the succeeding finance minister, another visionary, TT Krishnamachari, who rendered yeoman’s service to make the new organisation a success.

Deshmukh had written in his autobiography that if in the future he was at all remembered, it should be for nationalising the life insurance business. Such was the importance he attached to this major reform in the financial sector. LIC has now grown into a financial giant and is able to face competition successfully.

A giant step such as this in the life insurance sector involving 243 life insurance companies was a unique experience, not only in this country but the world over. It is to the credit of the nation that this mammoth exercise was conducted with the utmost efficiency and secrecy.

The work of integrating all the operations was completed in about three or four years and it is a record feat of which we should be proud.

The authorities had taken care to separate the new business operations of the LIC from managing the existing business that was taken over. All the head offices in the various metros were grouped together and called Integrated Head Offices — and all the branches of these insurance companies similarly grouped into integrated Branch offices so as to facilitate easier and effective administration of the existing business which had as many systems as the number of companies involved.

The entire exercise of nationalisation of life insurance and the setting up of a monolithic organisation of the size of LIC had been become successful because there was perfect coordination between the finance ministry and the regulator on the one hand and the management and staff of the industry on the other.

Of course, there were grievances from the staff with regard to their wage fixation and a strike by LIC employees took place on December 5, 1956. The finance minister came down to Mumbai, held negotiations with the unions and settled the issues with the consequent issue of the Standardisation Order governing their pay scales, etc.

In his broadcast to the nation on the day insurance was nationalised, Deshmukh referred to the Second Five-Year Plan that was in the offing then and envisaged canalising life insurance savings towards financing the Plan.

His vision had been more than fulfilled in that for all the Five-Year Plans put together, LIC had financed ₹17.52 lakh crore as of December 2014 — a significant contribution towards fulfilling the vision of Deshmukh. Truly, people’s money for people’s welfare.

Let us remind ourselves that in the current era, another sector of the financial services industry, public sector banks, remain unmerged ever since they were taken over in 1969, and the task of merger is still unfulfilled alongside the major task of recovering defaulted loans.

In the years ahead, when the health of these public sector banks gets rosier, we expect the twin engines of the financial services industry — banking and insurance — to play a more significant part in taking the economy to a far higher trajectory.

The writer is a former LIC employee