Some of LIC’s policyholders’ premium is invested in projects that lead to natural catastrophes that often result in death of or injury to those very policyholders.

Over the last 100 years, India has been the second-worst (after China) country affected by climate change. We have suffered 757 ‘natural’ disasters (out of 15,000 studied), which affected nearly 2.5 billion people with nearly 10 million deaths—that’s about 100,000 a year. The economic cost, too, was catastrophic—at $186 billion.

Now, over time, the world (including India) has got better at managing natural disasters, so the number of deaths per disaster (corrected, of course, for the intensity of the disaster) is likely lower today than it was 50 or 60 years ago. On the other hand, as a result of galloping climate change, the number and intensity of disasters has increased and continues to increase each year. With the directional assumption that these two trends cancel each other out, we can estimate that the number of deaths from natural disasters in India will remain in the range of 100,000 a year.

One would expect that with deepening penetration of life insurance in India, the pain and difficulty of managing a significant proportion of these deaths should be reduced by payouts from life insurance policies, except, of course, that policies are notorious for small print, which results in narrowing of coverage in many instances. It is important to understand that for LIC settlement of these claims is a very minimal drop in the bucket as compared to its annual revenue—if we assume the average LIC policy is for an insured value of Rs 5 lakh and half the deaths due to natural disasters are insured, its liability on this score would be in the range of Rs 2,000-3,000 crore a year, marginal in LIC’s scheme of things.

However, the real issue is that LIC is a significant investor in many—perhaps, most—of the projects that end up as ‘natural disasters’. It now widely accepted that most natural disasters are not ‘Acts of God’ but rather the result of mindless, and often venal, Acts of Man, many sponsored by the government and, indeed, funded by government institutions, like LIC.

Environmentalists point out that projects like “…Ken-Betwa (tom-tommed in the recent Budget) represents our penchant to plonk for financial investments based on political imperatives, ignoring their financial and ecological viability. Other such projects include dams under melted glaciers, huge tourism investments in new ports without ensuring that existing ports are made ready for sea surges and rises. Coal mining and dam building that destroy the ecological services supplied by pristine ecosystems… the list is long.”

Increasingly, investors are recognising that underwriting categories like ‘Nat Cat’ should be recognised as neither Acts of God not natural catastrophes but basically a direct result of anthropogenic climate change. In response to accelerating climate change, general (and life) insurance premiums will have to rise—they are rising already—and investors will have to reassess both infrastructure projects and the rating of the insurance and reinsurance industries.

This is an issue that will come to the fore during LIC’s much heralded IPO. Unless it dramatically revamps its investment policies, LIC will be seen as failing in the stewardship of its policyholders’ premiums, some of which is invested in projects that lead to natural catastrophes that often result in death of or injury to those very policyholders. To quote Peter Bosshard, director of the Sunrise Project in the US, “Insurers selling insurance to (or investing in) fossil fuel companies is like hospitals selling cigarettes.”

Global investors who are being wooed for the IPO, particularly European institutional investors who need to comply with the EU’s Sustainable Finance Disclosure Regulation (SFDR) as well as the widening universe of ESG investors, should raise these issues that need to be addressed in LIC’s long-term business strategy.

Correspondingly, the government of India, as steward of our country and the lives and well-being of our citizens, should use the IPO as an opportunity to be transparent about the hurdles we face in reaching our commitment of net zero in 2070. It was heartening to hear the finance minister lead off the Budget with energy transition and climate action as core thrusts. However, as the Indian Express has reported, in six mega projects across key sectors, cleared between 2004 and 2020, stringent conditions to compensate for the projects’ high environmental impact have been sidestepped, ignored or, in some cases, met only on paper.

Investors—and citizens—still need to be convinced that the government was not simply using the finance minister to score brownie points by pushing empty words.

https://www.financialexpress.com/opinion/lic-ipo-a-game-changer-for-the-environment/2428852/