If you're a Key Man, a high price on your head is just a matter of policy
HOW much is Amitabh Bachchan's life worth? This question can now be answered, though it depends on who makes the estimate. Amitabh Bachchan Corporation Ltd (ABCL) thinks it is Rs 50 crore. Life Insurance Corporation of India (LIC) thinks it should be Rs 2 crore.
Sometime last year, the Industrial Development Bank of India (IDBI) and other financial institutions looking at lending to ABCL demanded that ABCL insure Amitabh. The company's fortunes rode on the Big B, and the financial institutions wanted some protection in case anything happened to him. The obvious next step was to apply to LIC for a Key Man policy, which insures a company against the death or resignation of a crucial employee. Affirms H.H. Faruqi, chief public relations officer, LIC: "The Bachchan proposal came to us a year back."
But LIC thought Rs 50 crore, as was proposed by Bachchan's company, was too high, but was willing to consider a figure of Rs 15 crore. Then the slide in ABCL's fortunes began, and Bachchan too reportedly could not provide documents like medical and financial clearances. The formal proposal, sent to LIC a month ago, stands rejected as of now. Says LIC's H.P. Singh, who figures in The Guinness Book of World Records for selling more policies than anyone else on the planet: "Currently, we would be comfortable with a Rs 2-crore policy on Bachchan."
With the markets getting more competitive, Key Man insurance is becoming increasingly popular. And a litany of industrialists and businessmen are insured. While Bachchan's Rs 50 crore is by far the largest amount ever proposed, the mantle of the biggest cover so far falls on Mukesh Patel, who controls Autoriders, one of Maruti's largest dealers countrywide. Patel, according to Singh, has three policies worth a total of Rs 15 crore. Next comes Jimmy Almeida, chief of GM Breweries (Rs 11 crore). Nimesh Kampani of JM Financial has been insured by his company for Rs 5 crore. Rajan Nanda of Escorts, Nandan Gadgil of the Gadgil-Western group and the Goenkas of Kitply in Calcutta are covered for Rs 5 crore each. G.S. Dodhy of STC Movers, haulage contractors for the Mumbai Port Trust, is covered for Rs 4 crore. Vinay and Bharat Rai of the Usha Group log in at Rs 2 crore each. A leading LIC agent is apparently right now tying up two of the largest deals ever—each for Rs 25 crore.
Key Man insurance helps companies in several ways. Besides the obvious cover, premia are tax-deductible. Policy proceeds received by the company are treated as capital receipt and therefore are not taxable. Besides, the organisation can raise a loan against the premium or even offer it as collateral security. So much so that a leading agent claims to have sold about 40 policies for a crore and more, 27 for over Rs 1.5 crore and six for over Rs 3 crore. High-net-worth individuals like filmstars and cricketers are other big insurees, though not necessarily through the Key Man route. Actress Karishma Kapoor got a Rs 5-crore approval though the deal was stalled after she was hauled up by the Income Tax department. Shah Rukh Khan has asked for a Rs 5-crore cover, which awaits final approval. Southern siren Naghma proposed a Rs 3-crore cover and finally got Rs 2 crore. Sachin Tendulkar is insured for Rs 2.5 crore. Interestingly, insurance coverage for politicians is rarely accepted. Not one agent Outlook spoke to could recollect a single example except for Mukesh Patel, who is a Rajya Sabha member.
To be fair, large insurance policies were popular even three decades back. Surendra and Niranjan Hiranandani, now prominent builders, were covered for Rs 3 lakh each in 1969 by their father. Siraj and Feroz Lokhandwala, again prominent builders in Mumbai today, were covered for Rs 4 lakh each in 1972. Aspi Balsara of Balsara Hygiene, the makers of Odomos and Odopic, got a Rs 50-lakh cover in 1987. This was largely to protect his family against any unforeseen mishap as he had just taken a Rs 1-crore loan. Around 10 years ago, Sunil Gavaskar took a Rs 50-lakh cover.
LIC, on its part, wants to maximise returns on mega-policies. In November 1995, it mandated that Key Man insurances could be done only through its Jeevan Shree scheme. This is the corporation's most expensive policy. Apparently, there's money in the deal for everybody. The agent gets anywhere between 14 to 35 per cent of the premium amount for a policy ranging from 5 years to 25 years.
The development officer, an LIC employee who recruits the agent, gets 6 to 8 per cent. LIC of course gets a hefty premium. For a Rs 1-crore policy, the yearly premium could vary from Rs 5 to Rs 13 lakh. The agent would earn up to Rs 4.3 lakh while the development officer could take home an incentive of up to Rs 1 lakh.
To sell big-ticket insurance, many development officers resort to a simple strategy. They recruit relatives, generally female, of prominent people as agents, who have easy access to high-net-worth individuals. According to sources, Archana Bhalerao, daughter of Congress spokesman V.N. Gadgil, is an agent; so also is S.V. Jagtap, Sharad Pawar's sister. Aruna, wife of D.H. Pai-Panandiker, economist and director-general of the RPG Foundation, is an agent. Both daughters of the late Raj Kapoor, Ritu Nanda (Rajan Nanda's wife) and Rima Jain, are agents.
Apparently, this is not a newfound modus operandi. Both Sonia and Maneka Gandhi have been LIC agents. Padma Desai, daughter-in-law of the late Morarji Desai was an agent in the late '70s. The appointment, says an LIC employee, went on to become an issue in Parliament during Morarji's prime ministerial tenure. But contrary to media reports, Amitabh's son Abhishek has never been an agent for the policy proposal. In the greed for more, development officers are appointing even people with dubious credentials. Apparently, gangster Amar Naik's wife, Anjali, has been given an agency.
However, this can prove to be counter-productive. The lady may use her contacts to get high-value policies. But, as she rarely ends up working as a full-fledged agent, the policy holder almost never gets the service he deserves. The one exception, according to Singh, is Ritu Nanda, who works professionally and has a lot of policy sales under her belt. The other negative of fat policies: a cleverly doctored sale can backfire. Sources claim that one of the country's largest policy holders is finding it difficult to pay his second premium.
If disaster strikes, these policies can be very useful. In the early '80s, Voltas did a Rs 5-lakh Key Man deal for its president, Ramesh Sarin. Sarin quit two years later. The company got the benefits. Says Pranpal Singh Kochhar, an agent for 30 years: "Banks and other institutions can insist on such an assurance as collateral before sanctioning loans. " The Life Insurance Federation of India has lodged a protest with the Central Insurance Regulatory Authority. It is also seeking the flexibility to use other plans while insuring high worth individuals. Also, says its vice-president, Rohit Dhanani: "We are requesting LIC to restrict giving agencies to people with connections in influential positions which has scope for exploitation." But then, the man who influenced 20th century India most was also an insurance agent. Yes, we're talking of Mahatma Gandhi.