Chapter No. III Progress of LIC of India. -...

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Chapter No. III

Progress of LIC of India.

3.1 Introduction:

Insurance means managing risk. For instance, in life insurance segment,

the insurance company tries to manage mortality (death) rates among the wide

array of clients. The insurance company works in a manner by collecting

premiums from policy holders, investing the money, and then reimbursing this

same money once the person passes away or the policy matures. The greater the

probability for a person to have a shorter life span than the average mark, the

higher premium that person has to pay. The case is the same for all other types

of insurance, including automobile, health and property. Ownership of

insurance companies is of two types are - Shareholder ownership and

Policyholder ownership.1

Life Insurance Corporation of India is perhaps India’s largest financial

institution. It came into existence when a large number of life insurance

companies were taken over by Government of India.2 The nationalization of

private insurance companies started a new era of insurance business i.e. LIC of

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India. In its early years, being a monopoly public sector company, it did not

face any competition. After opening the sector to private players, LIC of India

faced some competition.

The growth of the insurance sector in India has been phenomenal. The

insurance industry has undergone a massive change over the last few years and

the metamorphosis has been noteworthy. There are numerous private and

government insurance companies in India that have become synonymous with

the term insurance over the years. Offering a diversified product portfolio and

excellent services the many insurance companies in India have managed to

make their way into almost every Indian household.

With the rapid growth of the Indian Insurance industry, in particularly

serving a Middle Class that is growing on both size and wealth every year, it is

hardly surprising that Indian insurance companies are growing, and playing an

increasingly important role in the nation's financial services industry. This

increasing market is creating considerable competition among Indian insurance

companies in an industry that 20 years ago was relatively small. Customers buy

life insurance with great hope and aspirations. In India endowment products

which club savings with life protection are the most popular variety with

savings. People purchase life insurance to provide for crucial long term needs

such as kids’ higher education and marriages, retirement, house building, life

style or to leave behind an estate for the heirs.

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Life insurance is what that protects your family in your absence. Life

insurance policies provide a certain amount of money to your family in case

something happens to you. These come as a great financial relief during the

hour of needs. There are a number of insurance companies in India that offer

life insurance policies to its customers. The top insurance policies in India also

act as flexible money-saving scheme. There are a number of life insurance

policies available in India. Different policies come with different features. The

coverage amount and policy term also vary. There are several popular insurance

companies that offer top life insurance policies in India. Before going for any

life insurance policies, compare various policies offered by the top insurance

companies.

3.2 The need for Life Insurance:

Why do we need Life Insurance? Consider this. Under any

circumstances, the loss of a loved one is a traumatic experience. But, if your

family is also left without sufficient money to meet basic living needs or

prepare for future goals, they will have to cope with a financial crisis at the

same time. If faced with a financial crunch, your family might have to move to

a less desirable home, cut back on the quality of life, your children might have

to abandon higher studies plans. Your family might even be forced to go into

debt simply to pay the expenses, like medical bills, that result from your death. I

hope that by now you realize that the lack of sufficient life insurance coverage

when a loved one dies can have devastating consequences for a

family…consequences that can last for years. Hope now you get why we need

life insurance.

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3.3 What is Life Insurance?

Life Insurance is a way of transferring the risk attached with your life to

the insurer.3 In other words, life insurance is a policy bought from a life

insurance company, which provides financial stability to a family after a

member’s death, usually the bread winner of the family. Its function is to help

beneficiaries financially after the owner of the policy dies. If the policy owner

dies while the contract is in force, the insurance company pays a specified sum

of money free of income tax to the person or persons you name as beneficiaries.

The cash benefit helps provide for the family’s future needs as well, including

college education of children and spouse’s retirement needs.

3.4 Objectives of LIC:

Following are the objectives of LIC:

Spread Life Insurance widely and in particular to the rural areas and to

the socially and economically backward classes with a view to reaching

all insurable persons in the country and providing them adequate

financial cover against death at a reasonable cost.

Maximize mobilization of people's savings by making insurance-linked

savings adequately attractive.

Bear in mind, in the investment of funds, the primary obligation to its

policyholders, whose money it holds in trust, without losing sight of the

interest of the community as a whole; the funds to be deployed to the best

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advantage of the investors as well as the community as a whole, keeping

in view national priorities and obligations of attractive return.

Conduct business with utmost economy and with the full realization that

the moneys belong to the policyholders.

Act as trustees of the insured public in their individual and collective

capacities.

Meet the various life insurance needs of the community that would arise

in the changing social and economic environment.

Involve all people working in the corporation to the best of their

capabilities in furthering the interests of the insured public by providing

efficient service with courtesy.

Promote amongst all agents and employees of the corporation a sense of

participation, pride and job satisfaction through discharge of their duties

with dedication towards achievement of Corporate Objectives.

3.5 Various Insurance Plans of LIC for Individuals:

As individuals it is inherent to differ. Each individual's insurance needs

and requirements are different from that of the others. LIC's Insurance Plans are

policies that talk to you individually and give you the most suitable options that

can fit your requirement.4

Jeevan Arogya Plan.

Endowment Plus.

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Children Plans:

o Jeevan Anurag.

o Komal Jeevan.

o Jeevan Kishor.

o Jeevan Chhaya.

o Child Career Plan.

o Child Future Plan.

Education Annuity Plan

Jeevan Aadhar.

Jeevan Vishwas.

The Endowment Assurance Policy.

Jeevan Mitra.

Jeevan Anand.

New Janraksha Plan.

Jeevan Amreet.

Money Back Plans.

Jeevan Surbhi .

Beema Bachat.

Samridhi Plus.

Pension Plus.

Jeevan Madhur.

Jeevan Mangal.

Group Schemes.

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Following are the details of Anmol Jeevan Policy:

Table No. 3.01:

Anmol Jeevan Policy.

Product Name Anmol Jeevan Regular Premium

Coverage Amount 10,00,000

Minimum Policy Term 5 years

Maximum Policy Term 25 years

Minimum Entry Age 18 years

Maximum Entry Age 55 years

Maximum Exit Age 65 years

Premium Frequency Options Yearly / Half-yearly

Sources: www.licindia.in

3.6 Pre-Independence Scenario:

Pioneering efforts of reformers and social workers like Raja Ram mohan

Ray, Dwarakanath Tagore, Ramatam Lahiri, Rustomji Cowasji and other led to

entry of Indians in insurance business. First Indian insurance company under

the name “Bombay Life Insurance Society” started its operation in 1870, and

started covering Indian lives at standard rates. Later “Oriental Government

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Security Life Insurance Company”, was established in 1874, with Sir

Phirozshah Mehta as one of its founder directors and later emerged as a leading

Indian insurance company under the name “Bombay Life Assurance Society”

started its operations in 1870.5

With the patriotic fervor of Non-Corporation Movement (1919) and Civil

Disobedience Movement (1929), number of Indian companies entered the

insurance area. Eminent figures in political area like Mahatma Gandhi and

Pandit Nehru openly encouraged Indians to enter the fray. In 1914 there were

only 44 companies; by 1940 this number grew to 195. Business in force during

this period grew from Rs.22.44 crores to Rs.304.03 crores (1628381 polices).

Life fund steadily grew from Rs.6.36 crores to Rs.62.41 crores. In 1938, the

insurance business was heavily regulated by enactment of insurance Act

1938(based on draft bill presented by Sir N.N.Sarcar in Legislative Assembly in

January 1937). From here onwards the growth of life insurance was quite steady

except for a setback in 1947-48 due to aftermath of partition of Indian. In 1948,

there were 209 insurances, with 712.76 crores business in force under 3,016,

000 policies. The life fund by then grew to 150.39 crores.6

3.7 International Life Insurance Scenario:

The beginning of insurance services may be traced back to14th century in

Italy when ship carrying good were covered under poles apart. The logical and

orderly beginning of insurance took place in UK at Lloyds Coffee house at

Tower street London. Although the Insurance Industry has grown rapidly in

insurance developed economics its growth in developing countries has neither

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been satisfactory nor in tandem with the growth of other sector of the

economy.The12 most industrialized countries in the world still account’s

extremely low and surprising fact is that the Indian Insurance Industry has been

lagging behind even amongst the developing countries of the world.7

As Insurance constitutes one of the major segments of financial segment of

financial market the nature and pattern controls in country are shaped by its

political and economic philosophy economic and social compulsions and

pressure from invested groups and past experience est. Based upon these factors

different countries have evolved their own regulatory mechanism being

applicable to insurance to promote free and healthy competition amongst them,

while other have encouraged self control system to greater role being assigned

to actuaries, auditors, professionals etc. Insurance services in UK grew as early

as in 16th century; the sector was practically without government control and

intervention till 1870 when Life Insurance Act was passed.8 The act did not

impose any restriction on the sector but simply made it Obligatory on the

companies engaged in insurance business to disclose their financial and other

the details to the people and get finance evaluated by an actuary. Some of the

important development in the insurance sector. After the post war period in UK

are mentioned as under

Excessive competition for business led to decline of premium rates.

Return on investment in stocks market promoted cash flow basis for

development of general insurance business.

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Formation of captives pools self-insurance scheme supported by global

reinsure promoted shift from conventional to non conventional insurance

system.

Concentration of business in limited number of mega size companies’

medium size and small companies could not withstand the practice of

competition and had to survive on limited volumes of business from their

market sources.

USA being the most developed and refined economy of the world

primarily depends upon the private players for insurance business with a

regulatory framework encouraging and insuring free competition among the

participants .Japan has one of the most developed insurance sector in the world.

The density is as high US dolor 3896 and penetration is 11.87 percent. The

entire business is regulated under Insurance Business low, 1995. For obtaining a

license to conduct insurance business, the minimum capital requirement is

Japanese Yen 3o Million. The notable feature of japans Insurance industry is

the consternation of Business with limited number of large size companies. The

accession of WTO Chinese Insurance market was opened to foreign insurer

relaxing regulations and operational limitations. Chinese market was partially

opened to foreign insurance companies in 1992. American International group

(AIG) was the first company to establish but under the strict regulation. China

life Insurance company (CLIC) was the market leader in the life insurance

segment with a market share of 45 percent. Due to the problem of increasing

market share of foreign players Chinese government was forced to nationalize

the insurance business, as result of this people Insurance company of China

established in 1949 PICC was formed by combining few domestic players and

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all foreign players were shown the exit door form Chinese insurance market.

The Insurance law of 1995 was the first real attempt for growing the insurance

industry.9

3.8 Nationalization of Life Insurance (1956):

Despite the mushroom growth of many insurance companies per capita

insurance in Indian was merely Rs.8.00 in 1944, besides some companies were

indulging in malpractices, and a number of companies went into liquidation.

Big industry houses were controlling the insurance and banking business

resulting in inters looking of funds between banks and insurance companies.

This shook the faith of insuring public in insurance companies as custodians of

their savings and security. The nation under the leadership of Pandit

Jawarberlal Nehru was moving towards socialistic pattern of society with the

main aim of spreading of life insurance to rural areas and to channelize huge

funds accumulated by life insurance companies to nation building activities.

The Government of India nationalized the life insurance industry in January

1956 by merging about 250 life insurance companies and forming Life

Insurance Corporation of India (LIC), which started functioning from

01.09.1956.10

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3.9 An Overview of Insurance Business in India:

Insurance business is divided into four classes:

a) Life Insurance

b) Fire

c) Marine

d) Miscellaneous Insurance.

Life insurers undertake the Life Insurance business; general insurers handle the

rest. The business of insurance essentially means defraying risks attached to an

activity (including life) and sharing the risks between various entities, both

persons and organizations. Insurance companies are important players in

financial markets as they collect and invest large amounts of premium in

various investment instruments. Insurance offers the following benefits:

Protection to investors

Accumulation of savings

Channeling these savings into sectors needing huge long-term

investments.

Insurance companies receive a steady cash stream of premium or contributions

to pension plans. Their cash flows are determined on the basis of various

actuary studies and models. Since their liabilities are long-term or contingent in

nature, their investments are also long-term and they are able to maintain a

healthy liquidity position.11 since they offer more than the return on savings in

the shape of life cover to the investors, the rate of return guaranteed on their

insurance policies is relatively low. Consequently, the need to seek high rates of

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return on their investments is also low. Since the risk factor in the insurance

business is quite high, insurance companies usually invest in relatively safer

bets such as bonds of GOI, PSUs, state governments, local bodies, corporate

houses and mortgages of long-term nature. Lately, insurance companies have

also ventured into pension schemes and mutual funds.

Life insurance constitutes the major share of insurance business. Life

insurance depends upon the laws of mortality. Life has to end sooner or later

and the claim in respect of life is certain. On the other hand, in case of general

insurance, there may never be any claim and the amount cannot be ascertained

in advance. Hence, life insurance, besides providing a cover for life of

individuals, also serves as a good source of savings for the beneficiaries.

The life insurance market in India presents several striking features, which

appear, for the most part, to be necessary concomitants of the underdeveloped

nature of the country’s economy. Existences of a large number of life insurance

sellers and the narrowness of the life insurance market have been the

characteristics peculiar to India. The volume of life insurance business annually

sold on the Indian life insurance market came on an average to about Rs 160

crore.12 Most of these policies were sold during the phase of private enterprise,

by Indian organizations termed insurers by the Indian Insurance Act.

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3.10 List of Life Insurers: (as of 2008)

Apart from Life Insurance Corporation, the public sector life insurer,

there are 22 other private sector life insurers, most of them joint ventures

between Indian groups and global insurance giants.13

Life Insurer in Public Sector:

1. Life Insurance Corporation of India

Life Insurers in Private Sector:

1. AEGON Religare Life Insurance

2. Aviva Life Insurance

3. Bajaj Allianz Life

4. Bharti AXA Life Insurance Co Ltd

5. Birla Sunlife

6. Canara Hsbc Oriental Bank Of Commerce Life Insurance

7. DLF Pramerica Life Insurance

8. Future Generali Life Insurance Co Ltd

9. HDFC Standard Life

10. ICICI Prudential Life Insurance

11. IDBI Fortis Life Insurance

12. India First Life insurance company limited

13. ING Vysya Life Insurance

14. Kotak Life Insurance

15. Max New York Life Insurance

16. Metlife India Life Insurance

17. Reliance Life Insurance Company Limited - Formerly known as AMP

Sanmar LIC

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18. Sahara Life Insurance

19. SBI Life Insurance

20. Shriram Life Insurance

21. Star Union Dia-ichi Life Insurance Co. Ltd

22. Tata AIG Life

These are few companies on the list. The total life insurance market can

be judged in terms of 2 parameters- premium collected and number of new

policies underwritten. It can be seen that market share of more than 70 per cent

is with LIC. Life insurance policy in India is growing rapidly ever since the

sector opened up for the private and foreign players. The industry is in the

throes of competitive market forces. Unlike several industries like

telecommunication and oil industry, insurance is not a high capital cost

industry. This industry is build up on a good will and on access of distribution

network.

3.11 Life Insurance Process Flow:

The simplest life insurance business cycle looks like this:

The client approaches the insurer through an agent with a proposal

containing his personal details, income details, medical history, products,

sum assured, term and premium amount. The agent who brings this

proposal is termed as a servicing agent for the proposal.

The proposal will go through various stages of approval and risk

evaluation by the Central Processing Centre of the Insurance Company.

Upon final approval, a legal agreement, termed as policy, between the

insurer and the client is prepared whereby the insurer covers the client for

the sum assured. The client is also entitled for some additional benefits, if

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any, depending on the features of the product taken in the policy. The base

agent gets a commission for the policy.

The client pays a premium at regular intervals. These subsequent

premiums are termed as renewal premiums. The base agent gets a

commission on the renewal premium also.

The client may come back with some alterations to the policy viz.

increase/decrease in sum assured, increase/decrease of the term of policy

etc. The insurer will make the relevant changes to the policy and will issue

endorsements stating the alterations made and their effect on the policy.

During the term of the policy, the client can submit claims. The insurer

makes payment against the claim after verification. Depending on the type

of claim the policy is either terminated or is kept in force.

At the end of the term of the policy, the client gets the sum assured as part of

the maturity benefit under life insurance policies. In addition to this the client

will get the maturity bonus and any other benefits depending on the product

feature.

3.12 Structure of LIC of India:

The central office life insurance corporation of India consists eight zonal

officer, viz. north zone Delhi, North Central Zone Kanpur, Central Zone

Bhopal, Western Zone Mumbai, Eastern Zone Kolkatta, East Central Zone

Patna, South Zone Chennai, South Central Zone Hyderabad. There are 23

Divisional Offices of Western Zone Mumbai. Marathwada region have two

division Aurangabad and Nanded division. Nanded, Jalna, Parbhani and Hingoli

these four districts are included in Nanded division of Life Insurance

Corporation of India.14

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Since life insurance contracts are long term contracts and during the

currency of the policy it requires a variety of services need was felt in the later

years to expand the operations and place a branch office at each district

headquarter. Re-organization of LIC took place and large numbers of new

branch offices were opened. As a result of re-organization servicing functions

were transferred to the branches, and branches were made accounting units. It

worked wonders with the performance of the corporation. It may be seen that

from about 200.00 crores of New Business in 1957 the corporation crossed

1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to

cross 2000.00 crore mark of new business. But with re-organization happening

in the early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum

Assured on new policies.15

Today LIC functions with 2048 fully computerized branch offices, 109

divisional offices, 8 zonal offices, 992 satellite offices and the corporate office.

LIC’s Wide Area Network covers 109 divisional offices and connects all the

branches through a Metro Area Network. LIC has tied up with some Banks and

Service providers to offer on-line premium collection facility in selected cities.

LIC’s ECS and ATM premium payment facility is an addition to customer

convenience. Apart from on-line Kiosks and IVRS, Info Centers have been

commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad,

Kolkata, New Delhi, Pune and many other cities. With a vision of providing

easy access to its policyholders, LIC has launched its SATELLITE SAMPARK

offices. The satellite offices are smaller, leaner and closer to the customer. The

digitalized records of the satellite offices will facilitate anywhere servicing and

many other conveniences in the future.16

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3.13 Insurance Industry in India:

The following are the highlights of insurance industries in India.

Reaching Out To Customers: No doubt, the customer profile in the

insurance industry is changing with the introduction of large number of

divergent intermediaries such as brokers, corporate agents, and banc

assurance. The industry now deals with customers who know what they

want and when, and are more demanding in terms of better service and

speedier responses. With the industry all set to move to a de-tariffed

regime by 2007, there will be considerable improvement in customer

service levels, product innovation and newer standards of underwriting.

Intense Competition: In a de-tariffed environment, competition will

manifest itself in prices, products, underwriting criteria, innovative sales

methods and creditworthiness. Insurance companies will vie with each

other to capture market share through better pricing and client

segmentation. The battle has so far been fought in the big urban cities,

but in the next few years, increased competition will drive insurers to

rural and semi-urban markets.

Global Standards: While the world is eyeing India for growth and

expansion, Indian companies are becoming increasingly world class.

Take the case of LIC, which has set its sight on becoming a major global

player following a Rs. 280-crore investment from the Indian government.

The year 2005 was a testing phase for the general insurance industry with

a series of catastrophes hitting the Indian sub-continent. However, with

robust reinsurance programmes in place, insurers have successfully

managed to tide over the crisis without any adverse impact on their

balance sheets. With life insurance premiums being just 2.5 per cent of

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GDP and general insurance premiums being 0.65 per cent of GDP, the

opportunities in the Indian market place is immense. The next five years

will be challenging but those that can build scale and market share will

survive and prosper.

3.14 Market Share of Indian Insurance Industry:

The introduction of private players in the industry has added value to the

industry. The initiatives taken by the private players are very competitive and

have given immense competition to the on time monopoly of the market LIC.

Since the advent of the private players in the market the industry has seen new

and innovative steps taken by the players in this sector. The new players have

improved the service quality of the insurance. As a result LIC down the years

have seen the declining phase in its career. The market share was distributed

among the private players. Though LIC still holds the 75 per cent of the

insurance sector but the upcoming natures of these private players are enough to

give more competition to LIC in the near future. LIC market share has

decreased from 95 per cent (2002-03) to 81 per cent (2004-05).17

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3.15 Growth Performance Indicators of Life Insurance Company in

India:

Table No.3.02:

Growth of Life Insurance New Business in India. (2000-01 to 2009-10).

Sr.NO. Year No. of policies

(In Lakhs)

% of Growth

1 2000-01 196.65 100

2 2001-02 222.99 113.39

3 2002-03 242.79 123.46

4 2003-04 269.68 137.14

5 2004-05 239.78 121.93

6 2005-06 315.91 160.65

7 2006-07 382.29 194.40

8 2007-08 376.13 191.27

9 2008-09 359.13 182.62

10 2009-10 388.00 197.30

Source: Annual Report of IRDA (2000-01 to 2009-10)

Note:-Base year amount Rs.196.65 =100%

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Graph No.3.01:

Growth of Life Insurance New Business in India (2000-01 to 2009-10).

Source: - Table no.3.2

The above Table No. 3.02 shows the growth of LIC during the year 2000-01 to

2009-10 in new business number of policies. Under the new business categories

the number of policies rose from 196.65 lakh in 2000-01 to 388 lakh in the year

2009-10. The highest growth performance shown in the year 2009-10 i.e.

197.30 per cent. During the year The LIC shows the growth by 197.30 per cent.

196.65222.99

242.79269.68

239.78

315.91

382.29 376.13359.13

388

0

50

100

150

200

250

300

350

400

450

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

No. of policies(In Lakhs)

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Table No. 3.03:

Total Premium Received By LIC. (Rs. In Crores)

Sr. No. Year Total Premium (Rs.) % of Growth

1 2000-01 34890.02 100

2 2001-02 49821.91 142.80

3 2002-03 54628.49 156.57

4 2003-04 63533.43 182.10

5 2004-05 75127.29 215.33

6 2005-06 90792.22 260.22

7 2006-07 127822.84 366.36

8 2007-08 149789.99 429.32

9 2008-09 157288.04 450.81

10 2009-10 185985.00 533.06

Source: Annual Report of IRDA(2000-01 To 2009-10)

Note:-Base year amount Rs.34890.02 crores =100%

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Graph No. 3.02:

Total Premium Received By LIC. (Rs. In Crores)

Source:- Table no.3.03

The above Table No. 3.03 shows the total premium received by LIC during the

year 2000-01 to 2009-10. The total premium received in the year 2000-01 rose

from 34,890.02 crores to 1,85,985 crores in the year 2009-10. The growth

performance shown during the study period was that of 533.06 per cent. During

the study period The LIC shows the growth by more than five times in

premium.

34890.02

49821.91 54628.4963533.43

75127.29

90792.22

127822.84

149789.99157288.04

185985.00

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

Total Premium Rs.

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Table No.3.04:

Growth of Premium of New Business of Life Insurance India

(2000-01 to 2009-10). (Rs. In Crores)

Year Premium (Rs.) % of Growth

2000-01 9,700.98 100

2001-02 19,558.77 201.62

2002-03 15,976.76 164.69

2003-04 17,347.62 178.82

2004-05 20,653.06 212.90

2005-06 28,515.87 293.95

2006-07 56,223.56 579.57

2007-08 59,182.20 610.06

2008-09 61,718.52 636.21

2009-10 67,135.31 692.05

Source: Annual Report of IRDA. (2000-01 to 2009-10)

Note:-Base year amount Rs.9,700.98 crores =100%

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Graph No.3.03:

Growth of Premium of New Business of Life Insurance India (2000-01 to

2009-10).


Premium income is the second major source of income of life insurance

industry. Table No. 3.04 reveal that total premium earned by life insurance

industry during the year 2000-01 to 2009-10. Under the premium received by

new business categories the amount of premium rose from 9,700.98 crores in

2000-01 to 67,135.31 crores in the year 2009-10. The highest growth

performance showed in the year 2009-10t. During the year The LIC shows the

growth in premium by 692.05 per cent.

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

Premium (Rs. In Crores)

100

Table No 3.05:

Investment of Life Insurance Corporations. (Rs. In Crores)

Year LIC

(Rs.)

% of Growth

2000-01 1,93,283 100

2001-02 2,45,388 126.97

2002-03 2,58,201 133.59

2003-04 3,47,959 180.03

2004-05 4,18,289 216.41

2005-06 4,63,771 239.94

2006-07 5,59,201 289.32

2007-08 6,74,475 348.96

2008-09 7,62,892 394.70

2009-10 10,45,539 540.94

Source: IRDA annual financial reports. (2000-01 to 2009-10)

Note:-Base year amount Rs.193283 crores =100%

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Graph No 3.04:

Investment of Life Insurance Corporations. (Rs. In Crores)


Table No. 3.05 shows that the investment of LIC during the year 2000-01 to

2009-10. The investment made by LIC in the year Rs. 1.93 Lakh Crores were

increased up to Rs. 10.45 Lakh Crores in the year 2009-10. The growth index

shows the number as 100 in 2000-01 increased up to 541 in the year 2009-10.

During the study period incensement in the investment of LIC shows more than

five times growth.

0

100

200

300

400

500

600

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

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Table No 3.06:

Investment income (ROI) of LIC in India. (Rs. In Crores)

Year LIC

(Rs.)

% of Growth

2000-01 316 100

2001-02 821 259.81

2002-03 809 255.01

2003-04 29855 9447.78

2004-05 37066 11729.75

2005-06 40056 12675.95

2006-07 46784 14805.06

2007-08 56595 17909.81

2008-09 78804 24937.97

2009-10 1,12,425 35577.53

Source: IRDA Annual Financial Reports. (2000-01 To 2009-10)


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Graph No 3.05:

Investment income (ROI) of LIC in India. (Rs. In Crores)


Table No. 3.06 shows the income of LIC from investments during the year

2000-01 to 2009-10. The LIC received income from investment in the year

2000-01 Rs. 316 crores was increased up to Rs. 1,12,425 crores in the year

2009-10. The growth index shows the income of LIC with equal to 100 points

in the year 2000-01 was increased up to 35,577 points in the year 2009-10.

0

5000

10000

15000

20000

25000

30000

35000

40000

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

104

Table No 3.07:

Operating Expenses of LIC. (Rs. In Crores)

Year LIC

(Rs.)

% of Growth

2000-01 3706.56 100

2001-02 4260.40 114.94

2002-03 4571.76 123.34

2003-04 5186.50 139.93

2004-05 6241.26 168.38

2005-06 6041.55 162.99

2006-07 7085.84 191.17

2007-08 8309.32 224.18

2008-09 9064.29 244.55

2009-10 12245.82 330.38

Source: IRDA Annual Financial Reports. (2000-01 to 2009-10)

Note:-Base year amount Rs.3706.56 crores =100%

105

Graph No 3.06:

Operating Expenses of LIC. (Rs. In Crores)

Source: - Table no.3.07

Table No. 3.07 shows the operating expenses of LIC during the year 2000-01 to

2009-10. The operating expenses of LIC increased from Rs. 3,706.56 Crore in

the year 2000-01 to Rs. 12,245.82 crores in the year 2009-10. The growth index

shows the operating expenses of LIC was rose from 100 points in the year

2000-01 to 330.38 points in the year 2009-10.

3706.564260.4 4571.76

5186.5

6241.26 6041.55

7085.84

8309.329064.29

12245.82

0

2000

4000

6000

8000

10000

12000

14000

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

106

Table No 3.08: Total Assets of LIC. (Rs. in Crore)

Year Total Assets

(Rs.)

% of Growth

2000-01 500 100

2001-02 588 117.60

2002-03 64058 12811.60

2003-04 70278 14055.60

2004-05 81634 16326.80

2005-06 97255 19451.00

2006-07 134831 26966.20

2007-08 193303 38660.60

2008-09 2,97,980 59596.00

2009-10 3,12,299 62459.80

Source: IRDA Annual Financial Reports. (2000-01 To 2009-10) Note:-Base

year amount Rs.500 crores =100%

Graph No 3.07: Total Assets of LIC. (Rs. in Crore)


0

10000

20000

30000

40000

50000

60000

70000

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

107

Total Assets of LIC during the year 2000-01 to 2009-10 are shown in Table

NO. 3.08. The total assets of LIC rose from Rs. 500 crores in the year 2000-01

to 3, 12,299 crores in the year 2009-10. The growth index number shows the

100 points in the year 2000-01 increased up to 62,460 in the year 2009-10 the

growth rate in assets is very high of LIC during the study period.

Table No. 3.09:

Profit/Loss of LIC. (Rs. In Crore)

Year LIC

(Rs.)

% Growth

2000-01 317 100

2001-02 822 259.31

2002-03 497 156.78

2003-04 552 174.13

2004-05 708 223.34

2005-06 632 199.37

2006-07 747 235.65

2007-08 845 266.56

2008-09 957 301.89

2009-10 1061 334.70

Source: LIC Annual Financial Reports. (2000-01 to 2009-10)


108

Graph No. 3.08:

Profit/Loss of LIC. (Rs. In Crore)


Table No. 3.09 shows the growth in profit of LIC during the year 2000-01 to

2009-10. The profit earned by LIC in the 2000-01 was Rs. 317 (100) crores

were increased up to 1,061 Crore (334.70) crores in the year 2009-10. The

growth percentage shows more than three times growth i.e. 100 points to 335

points during the study period.

3.16 Growth Performance during the year 2009-10:

The insurance industry in India has changed rapidly in the challenging

economic environment throughout the world. In the current scenario, Indian

insurance companies have become competitive in nature and are providing

appropriate distribution channels to get the maximum benefit and serve

317

822

497552

708

632

747

845

957

1061

0

200

400

600

800

1000

1200

2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

109

customers in manifold ways. Indian Insurance industry has big opportunity to

expand, given the large population and untapped potential. The insurance

market in India has witnessed dynamic changes including entry of a number of

global insurers. Saturation of markets in many developed economies has made

the Indian market even more attractive for global insurance majors. The

Insurance Regulatory and Development Authority regulate and develop the

insurance sector in India through calibrated policy initiatives.

The life insurance industry witnessed a steady growth in 2009-10

financial year, with an 18 per cent increase in total premium received during the

year to Rs 2,61,025 crore over the previous fiscal. The industry had collected

premium worth Rs 2,21,791 crore in the previous fiscal.18 According to the

council's data, new business premium jumped 25 per cent to Rs 1,09,213 crore

in FY'10 from Rs 87,006 crore last year, while renewal premium of the industry

grew by 13 per cent to Rs 1,51,812 crore. Life insurance companies have been

adhering to rural and social sector obligation by covering more than 1.93 crore

lives in social sector in FY 2008-09. Life companies have also sold more than

2.8 crore policies in rural areas in FY'08 and FY'09. Besides, up to the 2009-10

fiscal, life insurance firms opened more than 11,927 branches, 70 per cent of

which are in semi-urban or rural areas. The total assets held by life Insurance

industry stood at about Rs 12,90,000 crore as on March 31, 2010. Considering

the above factors, life insurance industry has become one of the main

contributors towards the country's long-term infrastructure growth.

The life insurance sector of India has added up to 4.1 per cent of the GDP in

2009; a considerable growth was recorded since the time the sector was opened

110

for the private companies. The contribution in FDI by the life insurance

segment was recorded at US $ 1.3 billion, even though the government is likely

to increase the FDI cap limit from 26 per cent to 49 per cent. The year 2009-10

also saw private sector insurance company, Aviva Life Insurance establishing

nine unit-linked plans, in line with the recent IRDA guidelines featuring

enhanced and higher internal rate of return (IRRs). As per the data provided by

the IRDA, the businesses of the life insurance companies had a growth of 22

per cent at US$ 12 billion in April-November 2009-10, in comparison to the

US$ 9.8 billion during the same period last year. Such a huge sale of single

premium policies led the industry to record a raise of 53.25 per cent in

November 2009 alone.

With the registration of India First Life Insurance Company Limited, a

joint stake life insurance company encouraged by Bank of Baroda and Andhra

Bank of India and Legal & General Middle East Limited, UK, the total number

of life insurer’s registration with the Insurance Regulatory Development

Authority (IRDA) has increased to 23. According to industry body, Life

Insurance Council, The life insurance industry had earlier been anticipated to

grow by 15 per cent in the year 2009 - 10 and surpass the US$ 54.1 billion mark

in total premium income by March-end. This growth in premium income

includes new business as well as renewals, driven by increasing awareness on

the value of getting insured. The US$ 41-billion Indian insurance industry made

a grand return with better performances in the April-November 2009 period.

Life insurance in India recorded the first year premium (inclusive of Single

Premium) segment accounting to US$ 24 billion.19

111

Table No. 3.10:

Performance of LIC in 2009-10:

Particulars Crores Rs. Growth %

New Policies 3.88 8.21

First Premium Rs. 42,960 21.63

Total Premium Income Rs. 1,85,985 18.32

Total Income 2,98,721 49.15

Total Assets 11,52,057 31.88

Death Claims 7,033.68

Maturity / Survival Benefit claims 46,921.22

Valuation Surplus (Profit) 23,478

Dividend to Government 1,029

Source –IRDA Annual Financial Reports. (20010-11)

Performance of LIC in the year 2009-10 shows in details in Table No. 3.10. The

table shows that the growth rate in new policy is recorded by 8.21 per cent,

growth in first premium by 21.63 per cent, Total premium growth rate is 18.32

per cent, total income increased by 49.15 per cent and the growth recorded in

total assets is 31.88 per cent with compared to 2008-09.

112

Table No. 3.11:

Market Share of Indian Insurance Companies in the year 2009-10. (%)

Name of the Player Market share (%)

Life Insurance Corporation Of India 82.30

ICICI Prudential 5.63

Birla Sun Life 2.56

Bajaj Allianz 2.03

SBI Life Insurance 1.80

HDFC Standard 1.36

Tata Aig 1.29

Max NewYork 0.90

Aviva 0.79

Om Kotak Mahindra 0.51

Ing Vysya 0.37

Met Life 0.21

Source –IRDA Annual Financial Reports. ( 2009-10)

113

The Table No. 3.11shows the market share of various insurance

companies including LIC. It very interesting to know the above table that year

LIC keep with 82.3 per cent market share while other companies very less

performance in total market share. The table concludes that yet LIC is a

dominant player in insurance business in India.

Graph No. 3.09:

Market Share of Indian Insurance Companies in the year 2009-10.


India with about 200 million middle class household shows a huge untapped

potential for players in the insurance industry.20 Saturation of markets in many

developed economies has made the Indian market even more attractive for

global insurance majors. The insurance sector in India has come to a position of

very high potential and competitiveness in the market. Indians, have always

seen life insurance as a tax saving device, are now suddenly turning to the

private sector that are providing them new products and variety for their choice.

Market share (%)

Life Insurance Corporation Of

India

ICICI Prudential

Birla Sun Life

Bajaj Allianz

SBI Life Insurance

HDFC Standard

114

Table No. 3.12:

Comparative Growth of Life Insurance Business (Year 2009-10):

Sr.No.

Insurance Company 2008-09 2009-10

Growth over

the year

01 LIC 1247.89 2113.11 69.33

02 SBI Life 171.91 460.26 167.73

03 Bajaj Allianz 187.77 163.2 -13.08

04 Max New York Life 119.17 145.19 21.83

05 ICICI Prudential 344.79 135.82 -60.61

06 Relinace Life 157.92 110.78 -29.85

07 HDFC Standard Life 120.39 98.95 -17.8

08 Birla Sun Life 91.95 82.92 -9.82

09 ING Vyasa 30.19 37.76 25.07

10 Aviva Life 41.73 32.57 -21.95

11 Private total 1532.22 1488.48 -2.85

Total 2780.11 3601.58 29.54

Source –IRDA Annual Financial Reports. (2008-09 to2009-10)

The given above table No.3.12 of LIC, which recorded 69.33 per cent

growth in first-year premium during 2009-10, a bulk of the growth came from

the group single premium segment, where the first premium income rose over

six times to Rs 929.62 crore, as against Rs 151.13 crore in the corresponding

period last year. Similarly, individual single premium rose to Rs 426.90 crore

from Rs 366 crore in the corresponding period of last year. As a result of the

115

increase in premium collection, LIC’s market share increased to 58.67 per cent.

The insurance major had been losing markets share in the last few years.

LIC’s new business premium had declined by 10 per cent in the last

financial year while the private players’ grew their business by 1.03 per cent.

Even in case of SBI Life, the second-largest life insurance company, the trend

was similar.21 Since the growth is coming from the group business, especially

the single-premium segment, it may be difficult to sustain it. Business Standard

that the public sector player intended to focus on traditional policies to improve

sales during the current financial year. For private players, first-year collections

fell by 2.85 per cent in April. ICICI Prudential slipped from the second position

to fifth in the April collection, with SBI Life taking over as the largest private

sector life insurer. Of late, insurers have been focusing on profitability. They

are consolidating their business by bringing down their expansion plans. For

instance, Reliance Life has reported 30 per cent dip in its first-year premium as

against 28 per cent growth in 2008-09. It put on hold expansion after getting

regulatory approval for opening 400 branches. Similarly, ICICI Prudential is

looking at consolidation. The company posted Rs 577 crore net loss in 2008-09.

3.17 FDI Policy in Indian Life Insurance Industry:

The LIC is still the major company in the life insurance sector but with

such an emergence of the private companies, providing a range of

moneymaking policies and investment chances for people from all walks of life

the situation is fast changing.22 The Unit Linked Investment Plans (ULIP)

offering life cover as well as scope for savings and investment deserves extra

acknowledgement in this issue. Furthermore, with minimum lock-in period of

116

three years such plans are subjected to avoid miss usage of important tax

benefits.

3.18 Investment Policy of LIC of India:

According to section 19 (2) of the LIC Act, 1956, the LIC constituted an

investment committee for the purpose of advising it in matters relating to the

investment of its funds. The Corporation, in accordance with powers vested in it

by section 49 of the LIC Act, frames regulations, which were published in the

Official Gazette after the approval of the Central Government. The constitution

of the Investment Committee is dealt with in regulation 22, while regulation 24

stipulates that the Investment Committee will advise the Corporation on matters

referred to it relating to the investment of its funds. According to rules approved

regarding investment of funds, the executive director of Investments, under

instructions from the chairman, was empowered to invest funds of the LIC up to

a maximum of Rs 50 lakh in respect of Government and approved securities

and Rs five lakh in the case of debentures and ordinary or preference shares.

Further, no single scrip was to be more than Rs 2.5 lakh in the case of

debentures and Rs one lakh in the case of ordinary and preference shares. It was

also authorized to make investments in foreign countries to the extent of Rs 25

lakh.23 under this, the Corporation had to invest 25 percent of the controlled

fund in Government securities, a further sum equal to not less than 25 percent in

Government securities or other approved securities and not more than 15

percent in other investments. This amounts to around 35 percent of the

controlled fund being held in approved investments, and defined in section 27-

A of the Act.

117

In 1974, the investment policy of the LIC was revised, as recommended

by an informal group headed by the Governor of the Reserve Bank of India.

According to the revised policy, the LIC had to invest not less than 75 percent

of the controlled fund in Central Government marketable securities, Central and

State Government securities and in socially oriented projects, including house

building by policyholders. Of this 75 percent, not less than 50 percent could be

invested in Central and State Government securities and Government

guaranteed.24

People’s Money for People’s Welfare:

The Life Insurance Corporation of India has been a nation builder since

its formation in 1956. True to the objective of nationalization, the LIC has

mobilized the funds invested by the people in the life insurance for the benefit

of the community at large. The Corporation has deployed the funds to the best

advantage of the policy holders as well as the community as a whole, true to the

spirit of nationalization. Nation priorities and obligation of reasonable returns to

the policyholders are the main criteria of our investments.

118

Table No. 3.13:

Investments of LIC in Governments and Social Sectors. (In crore)

Year

Central

Govt.

Securities

State Govt.

Securities Infrastructure & Development.

Housing Power

Irrigation

& Water

Supply

Road,

Railways

etc. Others

2000-01 85181 17877 17998 12402 3657 325 NA

2001-02 109938 21463 19054 13447 4000 681 NA

2002-03 137276 28988 19944 14508 4420 781 NA

2003-04 166939 37402 20694 14805 7111 1272 NA

2004-05 199785 51303 16570 22439 8807 2463 4272

2005-06 236959 58928 19807 29740 8288 2477 3954

2006-07 272498 64285 22451 37881 7500 1516 4398

2007-08 297943 89234 24325 41120 6649 1154 8774

2008-09 318673 110697 34185 48090 6022 7218 5274

2009-10 360319 141292 40232 77585 5241 8066 17073

Source:-LIC Annual Report (2000-01 to 2010-11)

119

Graph no.3.10

Investments of LIC in Governments and Social Sectors.(In crore)

Source:-Table no.3.13

Graph no.3.11

Investments of LIC in Governments and Social Sectors.(In crore)

Source:-Table no.3.13

0

50000

100000

150000

200000

250000

300000

350000

400000

Central Govt. Securities State Govt. Securities

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2004 05 2005 06 2006 07 2007 08 2008 09 2009 10

Infrastructure & Development.

Housing 17998 19054 19944

20694


Power 12402 13447 14508

14805


Irrigation & Water Supply

3657 4000 4420 7111


Road, Railways etc. 325 681

781 1272

120

The above table no.3.13 shows that the LIC Investments in year 2000-01 is Rs.

85181 crores while in 2009-10 is Rs.360319 in Central Govt. Securities, 2000-

01 Rs.17877 crore while in 2009-10 is Rs.141292 in crores in State Govt.

Securities ,LIC also invested in Infrastructure & Development sector like as in

Housing they invested Rs.17998 crores in year 2000-01 & in the year 2009-10

Rs.40232 crores, Power they invested Rs.12402 crores in year 2000-01 & in the

year 2009-10 Rs.77585 crores , Irrigation & Water Supply they invested

Rs.3657 crores in year 2000-01 & in the year 2009-10 Rs.5241 crores, Road

Railways etc. they invested Rs.325 crores in year 2000-01 & in the year 2009-

10 Rs.8066 crores, & but in Others sector they are not interested to invest

initial ,in the year of 2004-05 they invested RS.4272 crores & in the year 2009-

10 Rs. 17073 crores. The above investment of the LIC is purely based on

Indians growth.

121

Table No. 3.14:

Claims Report of Various Insurance Companies.

Name of

Insurance

Companies

2009-10 2010-11

Claims Claims Claims Claims Claims Claims

repudiated settled pending repudiated settled pending

LIC 1.21 96.53 1.41 1.09 97.5 1.47

ICICI

Prudential 3.27 90.17 6.56 2.8 94.4 2.6

HDFC Life 4.67 91.14 4.2 3.97 96.03 0.61

Aviva Life 9.75 87.11 3.14 4.1 87.11 3.14

Birla Sun Life 10.62 89.09 5.82 4.99 94.66 0.35

India First Life 7.69 53.85 38.46 9.4 90.58 0.03

Max New York

Life 12.31 65.51 7.14 14.85 78.01 7.14

SBI Life 14.75 83.27 1.96 16.74 82.24 1.03

IDBI Federal

Life 23.81 49.52 26.67 21 65 14

Source: http://www.business-standard.com

3.19 Claims Report:

A repudiation ratio is a measure of claims rejected. During 2010-11, LIC

improved its repudiation ratio for death claims to 1.09 per cent from 1.21 per

cent in the previous year. In the same period, the public sector insurance

behemoth settled 97.5 per cent of death claims, whereas claims pending stood at

122

1.47 per cent. Overall, LIC have settled 99.6 per cent of the total claims in the

last financial year. And 95 per cent of the death claims were settled within 15

days of intimation. In total, during the 2010-11, LIC has settled around 18.3

million claims amounting to Rs 53,000 crore, which includes survival benefits,

maturity and death claims. Of this, Rs 6,000 crore accounted for 721,000 death

claims. Among the private players, ICICI Prudential Life was the best

performer in terms of claims repudiation ratio, whereas HDFC Life’s claims

settlement ratio was the highest, respectively. ICICI Prudential’s claims

repudiation ratio stood at 2.8 per cent, whereas for HDFC Life it was at 3.97 per

cent. During the same time, HDFC Life settled 96.03 per cent of the total death

claims, while ICICI Prudential settled 94.4 per cent of claims. Claims pending

for HDFC Life and ICICI Prudential stood at 0.61 per cent and 2.6 per cent,

respectively. Among the established players, the repudiation ratio for SBI Life

and Max New York Life worsened to 16.74 and 14.85, respectively. For the

smaller or relatively new private life insurance players, the ratio still remains on

the higher side. For instance, India First Life, which began operation in 2009,

had a repudiation ratio at 9.4 per cent, whereas for IDBI Federal Life which

started in 2007, it was 21 per cent.25

The repudiation ratio improves over a period of time as in a death within

two years (early death claims) of the issue of the policy requires investigation.

So, for the newer companies the proportion of early death claims always

remains high. Hence, the ratio is becomes skewed. Settlement of any insurance

claim involves interpretation of a lot of technical conditions generally used by

insurers to reject the claims. However, non-early death claims (claims after two

years of the issue of the policy) do not mandate any investigation. Hence, the

settlement procedure is faster and easier.

123

Table No. 3.15:

Claim Settlement operations of LIC:

Sr.

No.

Year Claim Settlement

(Number in lack)

Claim Settlement

Amount(Rs.in crores)

1 2000-01 75.86 11638

2 2001-02 87.67 14519

3 2002-03 96.91 17036

4 2003-04 103.91 19607

5 2004-05 114.91 23561

6 2005-06 120.84 28473

7 2006-07 135.31 36486

8 2007-08 138.68 37189

9 2008-09 149.00 37893

10 2009-10 216.00 53536

Source:-LIC Annual Report 2000-01To2010-11

The Table no.3.15 shows that the claim settlement by LIC in the 2000-01 was

Numbers in 75.86Lakhs were increased to Numbers 216 in Lakhs in the year

2009-10. & claim settlement by LIC in the year 2000-01 was Rs.11638 crores

were increased to Rs.53536 crores.

124

Contribution of LIC in Five Years Plan:

True to the spirit of nationalization, the Life Insurance Corporation has

deployed its funds to the best advantage of LIC policyholders as well as for the

community as a whole. National priorities and the obligation of reasonable

returns to the policy holders are the main criteria of LIC's investments. The

following table shows the contribution of LIC during the Five Year Plan period.

Table No. 3.16:

Contribution of LIC in Five Years Plan. (Rs. In crores)

Sr. Plan Plan Years Rs.

1 II Five Year Plan 1956-61 184

2 III Five Year Plan 1961-66 285

3 IV Five Year Plan 1969-74 1530

4 V Five Year Plan 1974-79 2942

5 VI Five Year Plan 1980-85 7140

6 VII Five Year Plan 1985-90 12969

7 VIII Five Year Plan 1992-97 56097

8 IX Five Year Plan 1997-02 170929

9 X Five Year Plan 2002-07 394779

10 XI Five Year Plan 2007-11 528390

Source:-LIC Annual Report 2000-01To2010-11

125

The Table No. 3.16 shows that the contribution of LIC in the five year plan.

The table shows that in the first five year plan LIC was contributes Rs. 184

crores increased up to Rs. 5,28,390 crores in the XI the plan of Government of

India.

3.20 Areas of Future Growth:

Life Insurance: The traditional life insurance business for the LIC has

been a little more than a savings policy. Term life (where the insurance

company pays a predetermined amount if the policyholder dies within a

given time but it pays nothing if the policyholder does not die) has

accounted for less than 2 per cent of the insurance premium of the LIC.

For the new life insurance companies, term life policies would be the

main line of business.

Health Insurance: Health insurance expenditure in India is roughly 6 per

cent of GDP, much higher than most other countries with the same level

of economic development. Of that, 4.7 per cent is private and the rest is

public. What is even more striking is that 4.5 per cent are out of pocket

expenditure. There has been an almost total failure of the public health

care system in India. This creates an opportunity for the new insurance

companies. Thus, private insurance companies will be able to sell health

insurance to a vast number of families who would like to have health care

cover but do not have it.

126

Pension: The pension system in India is in its infancy. There are

generally three forms of plans: provident funds, gratuities and pension

funds. Most of the pension schemes are confined to government

employees. The vast majority of workers are in the informal sector. As a

result, most workers do not have any retirement benefits to fall back on

after retirement. Total assets of all the pension plans in India amount to

less than USD 40 billion. Therefore, there is a huge scope for the

development of pension funds in India. The finance minister of India has

repeatedly asserted that a Latin American style reform of the privatized

pension system in India would be welcome. Given all the pros and cons,

it is not clear whether such a wholesale privatization would really benefit

India or not.

3.21 Review of the Committee on Reforms in the Insurance Sector:

The Government set up a committee under the chairmanship of R N

Malhotra to propose recommendations for reforms in the insurance sector. The

progress of the nationalized life insurance business had to be judged by the rate

of its progress towards the realization of the goals it set for itself. In 1974, the

Administrative Reforms Commission of the Government put forward certain

recommendations in pursuance of which the LIC formulated its objectives:26

To spread life insurance much more widely and in particular to the rural

areas, and to the socially and economically backward classes with a view

to reaching all insurable persons in the country and providing them, at a

reasonable cost, adequate financial cover against death.

127

To maximize mobilization of people’s savings by making insurance

linked savings adequately attractive.

To bear in mind, in the investment of funds, the primary obligation is to

its policyholders, whose money it holds in trust, without losing sight of

the interest of the community as a whole; the funds to be deployed to the

best advantage of the investors as well as the community as a whole,

keeping in view national priorities and obligations of attractive return.

To conduct business with utmost economy and with the full realization

that the moneys belong to the policyholders.

To act as trustees of the insured public in their individual and collective

capacities.

To meet the various life insurance needs of the community that would

arise in the changing social and economic environment.

To involve all people working in the Corporation to the best of their

capability in furthering the interest of the insured public by providing

efficient service with courtesy.

To promote amongst all agents and employees of the Corporation a sense

of participation, pride and job satisfaction through discharge of their

duties with dedication towards achievement of corporate objectives.

Keeping in view these objectives, the committee stated that LIC had achieved

several of the objectives of nationalization; but at the same time, it pointed out

several negative constraints. Following the recommendations of the Malhotra

Committee Report, in 1999, the Insurance Regulatory and Development

Authority (IRDA) was constituted as an autonomous body to regulate and

develop the insurance industry. The key objectives of IRDA were to promote

128

competition so as to enhance customer satisfaction through increased consumer

choice and lower premiums, while ensuring the financial security of the

insurance market. The IRDA opened the market in August 2000 with the

invitation for application for registrations. Foreign companies were allowed

ownership of up to 26 per cent.27 Companies were required to submit business

plans detailing the proposed capital structure, the nature of business they

planned to carry out and their plans for selling insurance to the rural and social

sectors. Even prior to the IRDA Act, a number of multinational insurance

companies had begun exploring the possibility of setting up operation in India

in anticipation of the deregulation of the industry. The first step was generally

finding a local partner and working towards signing a Memorandum of

Understanding. Certain Indian companies were also keen to enter the insurance

market and were themselves seeking international partners. At present, there are

13 companies in the life insurance business and another 13 in the general

insurance business operating in the country.

3.22 Insurance Regulatory Development Authority (IRDA)

In spite of phenomenal progress of LIC of India, especially in the 80s, the

government and public at large were not quite satisfied with it. By signing

GATT accord, the government of India committed to opening of insurance

sector to private sector – to local and global operators. A committee under the

chairmanship of late R. N. Malhotra was appointed by the government to look

into all the aspects of insurance industry in India.28 The committee too, opined

that in its about 40 years of existence, LIC had been able to insure only 22

percentage of the insurable population. A moot reason may be the lack of

competition. Further, the monopoly has resulted in lack of sensitivity to the

129

policy holders. There is a greater scope for product innovation and service

improvement. The committee recommended a number of measures to revamp

LIC of India, GIC of India and its four subsidiaries. It also recommended

allowing outside insurance companies to operate in India with an Indian

partner. After a great deal of discussion, finally the Lok Sabha has enacted the

Insurance Regulatory and Development Authority Act, 1999. In terms of the

act, the Insurance Regulatory and Development Authority is being set-up to

regulate and develop the insurance industry by opening it up to the private

sector. Foreign insurance companies can enter into the insurance sector in India

only with an Indian partner, as a joint-venture, with a capital contribution up to

a maximum of 26 percentage of the capital in the joint-venture.

3.23 Impact of LPG on LIC:

Insurance is an integral part of national economy and a strong pillar of

financial market.29 Therefore, waves of globalization have also deeply

influenced the insurance market worldwide. Financial Market Globalization has

also been strongly supported by Globalization of Insurance. With the increase

in Trade, Direct Investment and Portfolio Investment, there has been an ever

growing demand for Insurance services particularly in the emerging markets.

Globalization of Insurance market, as a part of the overall process of

liberalization in emerging and other countries enabled the foreign insurance

companies to enter in those countries and benefited both. There are several

benefits to the countries allowing foreign insurance companies to operate in

their countries which can be broadly classified into Economy related, and

Insurance marked related.

130

The Indian life insurance industry has its own origin and history, since its

inception. It has passed through many obstacles, hindrances to attain the present

status. The income earning capacity of an individual citizen of a nation and the

eagerness and awareness of the general public are the two key determinants of

the growth of any insurance industry. For that they should provide wider and

mass-employment opportunities and sound educational system. Moreover, the

general public must be inculcated with more knowledge, awareness and

importance about life insurance, and these steps help to boost the growth of

insurance industries. In this Indian context, the insurance habit among the

general public during the independence decade was quite rare and in the

following decades, it slowly got increased. There was a remarkable

improvement in the Indian insurance industry soon after the acceptance and

adaptation of Liberalization, Privatization, and Globalization (LPG) in the year

1991.30 After 1991 the Indian life insurance industry has geared up in all

respects, as well as it is being forced to face a lot of healthy competition from

many national as well as international private insurance players. The fall in the

savings rate and increased competition in the primary market and particularly

the aggressive mobilization by the Mutual Fund posed serious challenges before

LIC.

The initiative taken by the Government to open up the insurance sector in

1999 was backed by the setting up of IRDA to regulate the insurance business.

The Government, at the time of nationalization, could have done the same.

Instead of barring private initiative completely, it could have set up a regulatory

body to monitor the insurance business. This would have taken care of the

problem of speculative investments by the private companies.31 Hence, in the

light of the above, a partial nationalization of the sector would probably have

131

been a better option, with the private companies existing side by side thus

keeping the element of competition alive. It would have also served the

objective of the Government of reaching out to the masses of all strata and

income groups.

3.24 Progress of LIC in the Post LPG Era:

In the post LPG period, the Life Insurance Industry of India witnessed a

marvelous growth and touched its historical height. So many factors have

collectively contributed for this remarkable achievement. In this tenure, the LIC

of India introduced many phenomenal business strategies by way of offering

colorful schemes and products.32 The reason for these kinds of extraordinary

effect was only because of the stiff competition emerging by the private

insurance players. The private insurance companies are offering plenty of new

attractive schemes and products to get meaningful share in the insurance

market. However, the LIC of India has the powerful network and it is launching

attractive advertisements in the regular interval to create great awareness among

the general public. Simultaneously, the private life insurance companies are

also taking much pain to cover-up the major populations (inventors) under their

boundary, for that they are sponsoring series of effective awareness

Programmes through many attractive advertisements. This healthy competition

motivated the general public to go in favour of more investments in insurance.

While comparing the efficiency and progressiveness of life insurance business

in pre and post LPG arena, the Indian Life Insurance Industries are achieving a

magnificent growth.

132

3.25 Impact of Information Technology on Life Insurance Sector:

There is an evolutionary change in the technology that has revolutionized

the entire insurance sector. Insurance industry is a data-rich industry, and thus,

there is a need to use the data for trend analysis and personalization. With

increased competition among insurers, service has become a key issue.

Moreover, customers are getting increasingly sophisticated and tech-savvy.

People today don’t want to accept the current value propositions, they want

personalized interactions and they look for more and more features and add

ones and better service.

The insurance companies today must meet the need of the hour for more

and more personalized approach for handling the customer.33 Today managing

the customer intelligently is very critical for the insurer especially in the very

competitive environment. Companies need to apply different set of rules and

treatment strategies to different customer segments. However, to personalize

interactions, insurers are required to capture customer information in an

integrated system. With the explosion of Website and greater access to direct

product or policy information, there is a need to developing better techniques to

give customers a truly personalized experience. Personalization helps

organizations to reach their customers with more impact and to generate new

revenue through cross selling and up selling activities. To ensure that the

customers are receiving personalized information, many organizations are

incorporating knowledge database-repositories of content that typically include

a search engine and let the customers locate the all document and information

related to their queries of request for services. Customers can hereby use the

133

knowledge database to manage their products or the company information and

invoices, claim records, and histories of the service inquiry. These products also

may be able to learn from the customer’s previous knowledge database and to

use their information when determining the relevance to the customers search

request.

The introduction of new economic policy and consequent financial sector

reforms has brought number of changes in Insurance sector. This sector hitherto

owned by the life insurance corporation of India and other General Insurance

Companies of the Government of India have been opened to private partners.

The formation of IRDA partnership with insurance business and banking

business and the introduction of micro insurance have given new thrust to this

sector. All these trends have increased the competition both in life and non life

insurance business which resulted in more choice for consumers. These trends

need in depth analysis and documentation for policy formulation and future

direction. The book has the following objectives To create out the historical

development of insurance sector. To analyze the trends in insurance sector

before and after the privatization. To analyze the business performance of

insurance companies in public private and cooperative sectors. To analyze the

trends in banc-assurance. It is hoped that this edited book will fulfill the

requirements of students and executives in insurance education.34

134

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135

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34. K. Ravichandran (2002) - Recent Trends in Insurance Sector in India –

Abhijit Publications, New Delhi

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