For the first time in India's corporate history, a listed company is offering a free personal accident insurance policy. Deepak Nitrite, a Gujarat-based chemical intermediates company, is offering an investors' welfare scheme for its shareholders. The scheme offers a personal accident insurance policy that covers the risk of death and permanent (total/partial) disablement sustained due to an accident by a shareholder of the company.
All shareholders between 18 and 65 years are eligible for the insurance coverage. The sum insured depends on the number of equity shares held.
Those holding up to 1,500 equity shares will get the sum insured of Rs 40,000. If a shareholder holds equity shares between 1,501 and 5,000, the sum insured would be Rs60,000. For shareholders holding equity shares above 5,000, the sum insured would be Rs80,000.
The current price per share of Deepak Nitrite is approximately Rs1,947. Thus, effectively, this means if one is holding 1,500 shares worth Rs29,20,500, then one can get a personal accident policy coverage of a mere Rs40,000.
Similarly if one holds 5001 shares of Deepak Nitrite for Rs97,36,947, then one can get a ‘free’ personal accident policy coverage of a mere Rs80,000.
Why would a person with such a holding require a ‘free’ personal accident coverage for such a petty sum insured? Would he not have adequate insurance coverage for himself and his family?
To put things in perspective, if a 40-year old buys an online personal accident cover from an insurance company for a sum insured of Rs10 lakh, he would just have to pay a premium of about Rs800 to Rs1,600 per annum.
In fact, as a Moneylife Advisory subscriber (subscription can be as low as Rs2,950), you get a free personal accident cover of Rs2.5 lakh. It is surprising that Deepak Nitrite—an outstanding example of entrepreneurial success, whose share price has risen almost five-fold in the past one year, has suddenly chosen to be gimmicky.
Many termed it as nice gesture on social media but suggested that since the sum insured being offered as a freebie to shareholders is too low, the company could have spent the group insurance premium amount on corporate social responsibility (CSR) funding or as an extra bonus for their employees instead.
Many banks offer such special shareholder welfare schemes—for instance Saraswat Bank (unlisted) offers medical reimbursement up to Rs6,000 per year (which includes Rs3,000 for the shareholder and Rs3,000 for the shareholder’s spouse). But this is only available for its shareholders with income below a certain threshold.
This is perhaps the first time we are seeing insurance premium or sum insured being calculated in the form of floating value of listed equity shares held by a shareholder. It is also not clear if this passes the regulations of Securities and Exchange Board of India (SEBI), which regulates the market, and the Insurance Regulatory and Development Authority of India (IRDAI) which regulates the insurance sector.
While we have seen many listed companies such as Emami, HCL, Bata Hawkins, Reliance, Raymond, Bombay Dyeing, Apollo Hospitals, etc, offer special discount coupons for shareholders and the benefits offered are directly proportional to the number of shares held, under corporate and securities laws, usually, a company is prohibited from inducing a purchase, sale or holding of securities and financing of such activities by the company or its promoters.