Index

SR NO. CONTENT PAGE NO.

1 Concept of insurance 8

2 History of Insurance 12

3 Insurer’s Business

Model16

4 Insurance sector in

India18

5 Life Insurance 30

6 LIC (company profile) 36

7 Research

Methodology43

8 Main Competitors Of

LIC45

9 comparison 57

10 New policies Issued 58

11 Premium 59

12 Expenses 68

13 Ratios 75

14 Market share 82

1

15 Claims paid 87

16 Market share 88

17 profit 89

18 Life fund 90

19 Findings and

conclusion91

20 Bibliography 93

2

3

Concept of Insurance

Human life is subject to various risks—risk of death or disability due to natural or

accidental causes. Humans are also prone to diseases, the treatment of which may

involve huge expenditure. On the other hand, property owned by man is exposed to

various hazards, natural and man-made.

When human life is lost or a person is disabled permanently or temporarily, there is a

loss of income to the household. The family is put to hardship. Sometimes survival

itself is at stake for the dependants. When it comes to property, loss or damage to

property results in either whole or partial loss in income to the person or entity.

Risk has the element of unpredictability. Death/disability or loss/damage could occur at

anytime. Losses can be mitigated through insurance. Insurance is a commodity which

offers protection against various contingencies.  

Insurance products available for life and non-life are many. In non-life, apart form

personal covers such as accident covers and health insurance, there are products

covering liabilities under a particular law and or common law. The various products are

designed to cater to different needs of an individual or industry such as fire insurance

policy on multi-storeyed building, householder’s policy.

An insurance contract promises to make good to the insured a certain sum in

consideration for a payment in the form of premium from the insured.

4

Human life cannot be valued. Hence the sum assured ( or the amount guaranteed to be

paid in the event of a loss ) is by way of a ‘benefit’ in the case of life insurance. Life

insurance products provide a definite amount of money to the dependants of the insured

in case the life insured dies during his active income earning period or becomes

disabled on account of an accident causing reduction/complete loss in his income

earnings. An individual can also protect his old age when he ceases to earn and has no

other means of income by purchasing an annuity product.

A Personal Accident cover is also for protection. In the event of death or disability,

permanent or temporary, of the insured, it provides for compensation which is either the

whole or a percentage of the Capital Sum Insured depending on the kind of loss.

 

 In the case of Health Insurance, the policy seeks to cover expenses towards of

treatment of diseases and or injury upto the Sum Insured opted for by the insured.

 

In respect of insurance relating to property, there are many products available. Property

may be covered against fire and perils of nature including flood, earthquake etc.

Machinery may be insured for breakdown. Goods in transit can be insured under a

marine cargo insurance cover. Insurance covers are also available for ships and other

vessels.  A motor insurance policy covers third party damage as well as damage to the

vehicle.

 

Insurance of property is based on the principle of indemnity. The idea is to bring the

insured to the same financial position as he /she was before the loss occurred.  It

safeguards the investment in the property. Where there is no insurance, losses can mar a

project or an industry. General Insurance offers stability to the economy and to the

society.

 

5

Insurance offers security and so peace of mind to the individual. The concept of

insurance is that the losses of a few are made good by contribution from many. It is

based on the law of large numbers. It stemmed from the need of man to find a solution

for mitigation of losses. It also reflects the nature of man to find a solution collectively.

 

It is important for all to understand the various products that life and general insurance

companies offer before they make a choice as to the product they want to buy.

As per regulations, insurers have to give the various features of the products at the point

of sale. The insured should also go through the various terms and conditions of the

products and understand what they have bought and met their insurance needs. They

ought to understand the claim procedures so that they know what to do in the event of a

loss.

The concept of insurance is that the losses of a few are made good by contribution from

many. It is based on the law of large numbers. It stemmed from the need of man to find

a solution for mitigation of losses. It also reflects the nature of man to find a solution

collectively.

6

7

History of Insurance

History of insurance refers to the development of a modern laws and market

in insurance against risks. In some sense we can say that insurance appears

simultaneously with the appearance of human society.

Early methods of transferring or distributing risk were practiced by Chinese and

Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese

merchants travelling treacherous river rapids would redistribute their wares across many

vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed

a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and

practiced by early Mediterranean sailing merchants. If a merchant received a loan to

fund his shipment, he would pay the lender an additional sum in exchange for the

lender's guarantee to cancel the loan should the shipment be stolen.

Life insurance had its origins in ancient Rome, where citizens formed burial clubs that

would meet the funeral expenses of its members as well as help survivors by making

some payments.

As European civilization progressed, its social institutions and welfare practices also

got more and more refined. With the discovery of new lands, sea routes and the

consequent growth in trade, Medieval guilds took it upon themselves to protect their

member traders from loss on account of fire, shipwrecks and the like. Since most of the

trade took place by sea, there was also the fear of pirates. So these guilds even offered

ransom for members held captive by pirates. Burial expenses and support in times of

sickness and poverty were other services offered. Essentially, all these revolved around

the concept of insurance or risk coverage. That's how old these concepts are, really.

8

Insurance as we know it today owes its existence to 17th century England. In fact, it

began taking shape in 1688 at a rather interesting place called Lloyd's Coffee House in

London, where merchants, ship-owners and underwriters met to discuss and transact

business. By the end of the 18th century, Lloyd's had brewed enough business to

become one of the first modern insurance companies. Back to the 17th century, In 1693,

astronomer Edmond Halley constructed the first mortality table to provide a link

between the life insurance premium and the average life spans based on statistical laws

of mortality and compound interest. In 1756, Joseph Dodson reworked the table, linking

premium rate to age.

The first stock companies to get into the business of insurance were chartered in

England in 1720. The year 1735 saw the birth of the first insurance company in the

American colonies in Charleston, SC.

In 1759, the Presbyterian Synod of Philadelphia sponsored the first life insurance

corporation in America for the benefit of ministers and their dependents. However, it

was after 1840 that life insurance really took off in a big way. The trigger: reducing

opposition from religious groups. The 19th century saw huge developments in the field

of insurance, with newer products being devised to meet the growing needs of

urbanization and industrialization.

Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name

of Life Insurance Corporation of India's corporate headquarters, is derived from the Rig

Veda. The term suggests that a form of "community insurance" was prevalent around

1000 BC and practised by the Aryans. Burial societies of the kind found in ancient

Rome were formed in the Buddhist period to help families build houses, protect widows

and children.

9

Bombay Mutual Assurance Society, the first Indian life assurance society, was formed

in 1870. Other companies like Oriental, Bharat and Empire of India were also set up in

the 1870-90s.

It was during the swadeshi movement in the early 20th century that insurance witnessed

a big boom in India with several more companies being set up.

As these companies grew, the government began to exercise control on them. The

Insurance Act was passed in 1912, followed by a detailed and amended Insurance Act

of 1938 that looked into investments, expenditure and management of these companies'

funds.

By the mid-1950s, there were around 170 insurance companies and 80 provident fund

societies in the country's life insurance scene. However, in the absence of regulatory

systems, scams and irregularities were almost a way of life at most of these companies.

As a result, the government decided nationalise the life assurance business in India. The

Life Insurance Corporation of India was set up in 1956 to take over around 250 life

companies.

For years thereafter, insurance remained a monopoly of the public sector. It was only

after seven years of deliberation and debate - after the RN Malhotra Committee report

of 1994 became the first serious document calling for the re-opening up of the insurance

sector to private players -- that the sector was finally opened up to private players in

2001.

The Insurance Regulatory & Development Authority, an autonomous insurance

regulator set up in 2000, has extensive powers to oversee the insurance business and

regulate in a manner that will safeguard the interests of the insured.

10

Insurer’s Business Model

The business model can be reduced to a simple equation: Profit = earned premium +

investment income - incurred loss - underwriting expenses.

Insurers make money in two ways: (1) through underwriting, the process by which

insurers select the risks to insure and decide how much in premiums to charge for

accepting those risks and (2) by investing the premiums they collect from insured

parties.

The most complicated aspect of the insurance business is the underwriting of policies.

Using a wide assortment of data, insurers predict the likelihood that a claim will be

made against their policies and price products accordingly. To this end, insurers

use actuarial science to quantify the risks they are willing to assume and the premium

they will charge to assume them. Data is analyzed to fairly accurately project the rate of

future claims based on a given risk. Actuarial science uses statistics and probability to

analyze the risks associated with the range of perils covered, and these scientific

principles are used to determine an insurer's overall exposure. Upon termination of a

given policy, the amount of premium collected and the investment gains thereon minus

the amount paid out in claims is the insurer's underwriting profit on that policy. Of

course, from the insurer's perspective, some policies are "winners" and some are

"losers" insurance companies essentially use actuarial science to attempt to underwrite

enough "winning" policies to pay out on the "losers" while still maintaining

profitability.

An insurer's underwriting performance is measured in its combined ratio. The loss ratio

is added to the expense ratio to determine the company's combined ratio. The combined

ratio is a reflection of the company's overall underwriting profitability. A combined

ratio of less than 100 percent indicates underwriting profitability, while anything over

100 indicates an underwriting loss.

11

Insurance companies also earn investment profits on “float”. “Float” or available

reserve is the amount of money, at hand at any given moment, that an insurer has

collected in insurance premiums but has not been paid out in claims. Insurers start

investing insurance premiums as soon as they are collected and continue to earn interest

on them until claims are paid out. The Association of British Insurers  has almost 20%

of the investments in the London Stock Exchange.

In the United States, the underwriting loss of property and casualty

insurance companies was $142.3 billion in the five years ending 2003. But overall profit

for the same period was $68.4 billion, as the result of float. Some insurance industry

insiders, most notably Hank Greenberg, do not believe that it is forever possible to

sustain a profit from float without an underwriting profit as well, but this opinion is not

universally held. Naturally, the “float” method is difficult to carry out in an

economically depressed period. Bear markets do cause insurers to shift away from

investments and to toughen up their underwriting standards. So a poor economy

generally means high insurance premiums. This tendency to swing between profitable

and unprofitable periods over time is commonly known as the "underwriting"

or insurance cycle. 

Property and casualty insurers currently make the most money from their auto insurance

line of business. Generally better statistics are available on auto losses and underwriting

on this line of business has benefited greatly from advances in computing. Additionally,

property losses in the United States, due to unpredictable natural catastrophes, have

exacerbated this trend.

12

13

Insurance Sector In India

The insurance sector in India has come a full circle from being an open competitive

market to nationalization and back to a liberalized market again.  Tracing the

developments in the Indian insurance sector reveals the 360-degree turn witnessed over

a period of almost 190 years. 

The business of life insurance in India in its existing form started in India in the year

1818 with the establishment of the Oriental Life Insurance Company in Calcutta.

Some of the important milestones in the life insurance business in India are:

1818: Oriental Insurance company first insurance company in India.

1870: Bombay mutual life assurance company first Indian Insurance company.

1912: The Indian Life Assurance Companies Act enacted as the first statute to

regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to

collect statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with

the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the

central government and nationalised. LIC formed by an Act of Parliament, viz.

LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of

India.

India's share in the global life insurance business rose to 1.97% in 2007 as compared to

1.68% in 2006. 

However, the business volume in 'new life insurance products' have slowed down

considerably in the 2007 to 2008 period. 

14

But the overall business growth has been more than 36% (measured in dollar terms).

One reason for this has been rupee appreciation (in terms of the US dollar). Another

factor has been the premium renewal factor. 

As per a report from Swiss Re, the global life insurance market experienced a real

growth rate of 5.4%. This is the inflation adjusted growth. The comparable figure for

India was 14.2% for the 2007-08 period. This was two-and-half times over the global

average. 

Swiss Re predicts a robust life insurance sector for 2008 but quite the opposite scenario

for the non -life sector. A modest growth is fore-casted for 2008 in view of the stock

market and capital market volatility. 

Before year 2001 private sectors were not allowed to enter in Life insurance business.

Lic was having 100% market share but after 2001 IRDA allows private sector to enter

into insurance business.

On October 23, the Insurance Regulatory Development Authority (IRDA) issued

certificates of registration to three private companies to undertake insurance business.

Two of them - Reliance General Insurance and Royal Sundaram Alliance - will be in

the non-life sector while the third - HDFC Standard Life Insurance - will do life

insurance business.

To date (end of April 2001), the following companies had thus been granted licenses:

ICICI -Prudential, Reliance General, Reliance Life, Tata-AIG General,

HDFCStandardLife, Royal-Sundaram, Max-New York Life, IFFCO-Tokio Marine,

Birla-SunLife, Bajaj-Allianz General, Tata-AIG Life, ING-Vyasa, Bajaj-Allianz Life,

SBICardiff Life. All of these companies were either in the life insurance business or

in the non-life insurance business. No license was granted for reinsurance business

15

There are two type’s players in the India Insurance Sector, which is described

below

The heavy capital investments in terms of the distribution networks, hiring of agents

and the long gestation period of 7-10 years provide entry barriers for the industry.

The IRDA which is Insurance Regulatory and Development Authority has Provided

three levels in the Insurance sector.

1. Insurance Company (insurer)

2. Insurance Broker

3. Insurance Agent.

16

Registration Of Private Companies With IRDA For Life Insurance Business.

SR.no. Reg.

no

Date of

reg.

Name of the company

1 101 23.10.2000 HDFC Standard Life Insurance Company Ltd.

2 104 15.11.2000 Max New York Life Insurance Co. Ltd. 

3 105 24.11.2000 ICICI Prudential Life Insurance Company Ltd. 

4 107 10.01.2001 Kotak Mahindra Old Mutual Life Insurance Limited 

5 109 31.01.2001 Birla Sun Life Insurance Company Ltd. 

6 110 12.02.2001 Tata AIG Life Insurance Company Ltd. 

7 111 30.03.2001 SBI Life Insurance Company Limited .

8 114 02.08.2001 ING Vysya Life Insurance Company Private Limited 

9 116 03.08.2001 Bajaj Allianz Life Insurance Company Limited 

10 117 06.08.2001 Metlife India Insurance Company Ltd. 

11 121 03.01.2002 Reliance Life Insurance Company Limited.

12 122 14.05.2002 Aviva Life Insurance Co. India Pvt. Ltd.

13 127 06.02.2004 Sahara India Insurance Company Ltd.

14 128 17.11.2005 Shriram Life Insurance Company Ltd.

15 130 14.07.2006  Bharti AXA Life Insurance Company Ltd. 

16 133 04.09.2007 Future Generali India Life Insurance Company

Limited

17 135 19.12.2007 IDBI Fortis Life Insurance Company Ltd.

18 136 08.05.2008 Canara HSBC Oriental Bank of Commerce Life

Insurance Company Ltd.

19 138 27.06.2008 Aegon Religare Life Insurance Company Ltd.

17

20 140 27.06.2008 DLF Pramerica Life Insurance Company Ltd.

21 142   Star Union Dai-ichi Life Insurance Co. Ltd.,

Insurance Businees:

Insurance business is divided into four classes :

1) Life Insurance

2) Fire Insurance

3) Marine Insurance and

4) Miscellaneous Insurance.

Life Insurers transact  life insurance business; General Insurers transact the rest. No

composites are permitted as per law.

Legislation (as on 1.4.2000):

Insurance is a federal subject in India. The primary legislation that deals with insurance

business in India is: 

Insurance Act, 1938, and Insurance Regulatory & Development Authority Act,

1999.

18

Insurance Products :

Life Insurance:

Popular Products: Endowment Assurance (Participating), and Money Back

(Participating). More than 80% of the life insurance business is from these products.

General Insurance:

Fire and Miscellaneous insurance businesses are predominant. Motor Vehicle insurance

is compulsory.

Tariff Advisory Committee (TAC) lays down tariff rates for some of the general

insurance products

19

Death

Disability

Accident

Sickness

Old ageMisc

Accident

Motor

Marine

Fire

20

Committee:

When any types of market going on with out control then some processor

handling by the government. So that Government had appointed to MALHOTRA

COMMITTEE who have make some rules and create some new regulations for the

insurance sector.

Malhotra committee was established in 1993 by Indian Financial system and Reserve

Bank of India. Committee was set up with the objective of complementing the reforms

initiated in the financial sector.

Customer Protection:

Insurance Industry has Ombudsmen in 12 cities. Each Ombudsmen is empowered to

redress customer grievances in respect of insurance contracts on personal lines where

the insured amount is less than Rs. 20 lakhs, in accordance with the Ombudsman

Scheme. Addresses can be obtained from the offices of LIC and other Insurers.

Policyholder Grievances:

The Grievance Redressal Cell of the Insurance Regulatory and Development Authority

looks into complaints from policyholders. Complaints against Life and Non-life

insurers are handled separately. This Cell plays a facilitative role by taking up

21

complaints with the respective insurers.

Policyholders who have complaints against insurers are required to first approach the

Grievance / Customer Complaints Cell of the concerned insurer. If they do not receive a

response from insurer(s) within a reasonable period of time or are dissatisfied with the

response of the company, they may approach the Grievance Cell of the IRDA. The

complaints need to be addressed to the Non-life insurance Grievance Cell of the IRDA

and forwarded to the address given below.

Only cases of delay/non-response regarding matters relating to policies and claims are

taken up by the Cell with the insurers for speedy disposal.

As claims/policy contracts in dispute require adjudication and the IRDA does not carry

out any adjudication, insureds are advised to approach the available quasi-judicial or

judicial channels, i.e., the Insurance Ombudsmen, Consumer fora or the Civil courts for

such complaints. The list of Insurance Ombudsmen along with their contact details are

available on this website under the heading ‘Ombudsmen’.

Only complaints from the insureds themselves or the claimants shall be entertained. The

Cell shall not entertain complaints written on behalf of policyholders by advocates or

agents or any third parties.

Where complaints are being sent through e-mail, complainants are requested to submit

complete details of the complaint as required in the complaints registration form.

Without this the Cell will not be in a position to register the complaint.

22

Indian Scenario

The Indian insurance industry is governed by the Insurance Act 1978, the General

Insurance Business Act 1972, Life Insurance Corporation Act 1956 and Insurance

Regulatory and Development Authority Act, 1999. The capital requirement for starting

a general or Life Insurance Company is equity paid-up capital of Rs. 100 corer and for

starting a reinsurance company it is Rs. 200 corer. The solvency margin requirements

have been laid down in section 64VA of the Act. It has been stated that the required

solvency margin shall be the highest of

1) Rs. 50 cr and Rs. 100 cr in case of reinsurance,

2) a sum equivalent to 30% of net incurred claims.

The supervisory controls on insurance companies are exercised by Insurance

Development and Regulatory Authority (IRDA) and these powers flow from Insurance

Act, 1938 as well as IRDA Act 1999. Regulatory and supervisory powers of the

authority are wide and pervasive. These controls are exercised through grant of licence

to an insurance to an insurance company, approving its product and pricing, guiding

deployment of investment funds, prescribing solvency margin, making it obligatory to

appoint an actuary by the companies and approving the appointment of chief executives

of the companies. The authority has also got the powers of investigation and inspection,

monitoring the activities of intermediaries, making it obligatory on the part of insurance

companies to prepare a balance sheet, a profit and loss account, a separate account of

receipts and payments and a revenue account in respect of each class of business. It also

has the power to issue licenses to surveyors and loss assessors and guiding reinsurance

programs to insurance companies.

23

Distribution Channels

Till date insurance agents still remain the main sources through which insurance

products are sold. The concept is very well established in the country like India but still

the increasing use of other sources is imperative. It therefore makes sense to look at

well-balanced, alternative channels of distribution.

LIC has already well established and have an extensive distribution channel and

presence. New players may find it expensive and time consuming to bring up a

distribution network to such standards. Therefore they are looking to the diverse areas

of distribution channel to have an advantage. At present the distribution channels that

are available in the market are:

Direct selling

Corporate agents

Group selling

Brokers and co-operative societies

Bank Assurance

24

Life

Insurance

25

What Is Life InsuranceHuman life is subject to risks of death and disability due to natural and accidental cause.

When human life is lost or a person is disabled parentally or temporarily, there is a loss

of income to the household. The family is put to hardship. Sometimes, survival itself is

at stake for the dependents. Risks are unpredictable. Death/disability may occur when

one least expects it. An individual can protect him/herself against such contingencies

through life insurance.

Life insurance is insurance on human beings. Though Human Life cannot be valued, a

monetary sum could be determined which is based on loss of income in future years.

Hence in life insurance, the sum assured is by way of a ‘benefit’ in the case of life

insurance. Life insurance products provide a definite amount of money to the

dependents of the insured in case the life insured dies during his active income earning

period or becomes disables on account of an accident causing reduction/complete loss

in his income earnings.

An individual can also protect his old age when he ceases to earn and has no other

means of income – by purchasing an annuity product.

There are a number of life insurance products which offer protection and also coupled

with savings

26

A term insurance product provides a fixed amount of money on death during the period

of contract, A whole life insurance product provides a fixed amount of money on death.

An endowment Assurance product provided a fixed amount of money either on death

during the period of contract or at the expiry of contract if life assured is alive.

A money back assurance product provides not only fixed amount which are payable on

specified dates during the period of contract, but also the full amount of money assured

on death during the period of contract.

An annuity product provides a series of monthly payments on stipulated dates provided

that the life assured is alive on the stipulated dates

A linked product provides not only a fixed amount of money on death but also sums of

money which are linked with the underlying value of assets on the desired dates.

There are a variety of life insurance product to suit the needs of various categories of

people- children, youth, women, middle age person, old people; and also rural people,

film actors and unorganised labourers.

Life insurance product could be purchased from registered life insurers notified by the

IRDA. Insurers appoint insurance agents to sell their products. Public who are

interested to buy life insurance products should receive proper advice from insurance

agents/insurer so that a right product could be suit particular financial needs.

Thus life insurance policies offer protection and security to families and provide

happiness to society.

27

Life Insurance

Life insurance made its debut in India well over 100 years ago. Its salient features are

not as widely understood in our country as they ought to be. What follow is an attempt

to acquaint readers with some of the concepts of life insurance, with special reference to

LIC. It should, however be clearly understood that the following narration is by no

means an exhaustive description of the terms and conditions of LIC policy or its

benefits or privileges.

28

Why Is It Superior To Other Forms Of Savings?

Protection: Savings through life insurance guarantee full protection against risk of

death of the saver. In life insurance, on death, the full sum assured is payable where as

in other savings, only the amount saved is payable.

Aid to thrift: Life insurance encourages “thrift”. Long term savings can be made in a

relative ‘painless’ manner because of the ‘easy instalments’ facility built into the

scheme.

Liquidity: Loans can be raised on the sole security of a policy which has acquired loan

value. Besides, a life insurance policy is also generally accepted as security for even a

commercial loan.

Tax relief: Tax relief in income tax and wealth tax is available for amounts paid by

way of premium for life insurance subject to income tax rates in force. Assesses can

avail themselves of provisions in the law for tax relief. In such cases the assured in

effect pays a lower premium for his insurance than he would have to pay otherwise.

Money when you need it.: A suitable insurance plan or a combination of different

plans can be taken out to meet specific needs that are likely to arise in future, such as

children’s education, start in life or marriage provision or even periodical needs for cash

over a stretch of time. Alternatively, policy moneys can be so arranged to be made

available at the time of one’s retirement from service to be used for any specific

purpose, such as for the purchase of a house or for other investments. Subject to certain

conditions, loans are granted to policyholders for house building or for purchase of

flats.

29

Tax Savings Through Insurance:

Insurance is generally purchased for tax saving which may be or bane for the

insurance sector. Tax planning is affected by the choice of the insurance product.

Insurance is one of the investment option which privies income tax exemptions are

rebates per the income tax act, 1961. some of the sections under which tax relates and

exemptions can be availed are sec 88, sec 80D, sec 80 DDA, sec 80CCA(I) and sec

10D. this act make no difference between private and public sector insurance

companies. Hence, tax benefits can be availed by purchasing polices from either

companies.

30

31

32

Life Insurance Corporation Of India

The first two decades of the twentieth century saw lot of growth in insurance business.

From 44 companies with total business-in-force as Rs.22.44 crore, it rose to 176

companies with total business-in-force as Rs.298 crore in 1938. During the

mushrooming of insurance companies many financially unsound concerns were also

floated which failed miserably. The Insurance Act 1938 was the first legislation

governing not only life insurance but also non-life insurance to provide strict state

control over insurance business. The demand for nationalization of life insurance

industry was made repeatedly in the past but it gathered momentum in 1944 when a bill

to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.

However, it was much later on the 19th of January, 1956, that life insurance in India

was nationalized. About 154 Indian insurance companies, 16 non-Indian companies and

75 provident were operating in India at the time of nationalization. Nationalization was

accomplished in two stages; initially the management of the companies was taken over

by means of an Ordinance, and later, the ownership too by means of a comprehensive

bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of

June 1956, and the Life Insurance Corporation of India was created on 1st September,

1956, with the objective of spreading life insurance much more widely and in particular

to the rural areas with a view to reach all insurable persons in the country, providing

them adequate financial cover at a reasonable cost.

LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its

corporate office in the year 1956. 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-organisation servicing functions were transferred to the

branches, and branches were made accounting units. It worked wonders with the

33

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-organisation happening in the early eighties, by 1985-86 LIC had already crossed

7000.00 crore Sum Assured on new policies.

Today LIC functions with 2048 fully computerized branch offices, 100 divisional

offices, 7 zonal offices and the Corporate office. LIC’s Wide Area Network covers 100

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 Centres 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.

34

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 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 capability 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 Objective.

35

Mission:

"Explore and enhance the quality of life of people through financial security by

providing products and services of aspired attributes with competitive returns,

and by rendering resources for economic development."

Vision:

"A trans-nationally competitive financial conglomerate of significance to societies

and Pride of India."

36

Organization Structure

The 15 member of the life insurance corporation of India are appointed by the central

government. One of the members is also appointed by the central government as the

chairman.

The LIC of India has a 4 tire structure, the central office at Mumbai, 8 Zonal Offices,

100 Divisional Offices and 2048 Branch Offices in India. Foreign branches report

directly to the central office Mumbai. All offices clearly demarcated geo-graphical

areas of operations, excepts branch offices in big cities which have common areas.

Almost 99% of the activities relating to policy holders are done at the level of the

branch offices. Investments are done at the central office.

Thus, this is the big and giant organization structure of LIC of India ltd. This

organization can be shown through the chart also as under.

37

The Chart of Organization Structure

Four tier structure

(8 Zonal Offices)

(100 Divisional Offices)

(2048 Branch Offices)

38

Central Office

NZ NCZ CZ EZ SCZ SZ WZ EZ

39

Research Methodology

1. Objective:

The objective of study is to know the market position and financial position

of LIC compare to other Private Players.

2. Types of Data:

I have used secondary data, as the nature of the project is study approach.

3. Data collection tools:

I have used various internal reports. As well as I have used chairperson’s

report of last 4 years and an intranet site of LIC and IRDA to gather information that

I needed.

4. Type of Study:

The type of study is comparative analysis of LIC and other Private Players.

40

Main competitors of LIC

SBI Life Insurance Company

ICICI Prudential Life Insurance Company

Birla Sun Life Insurance Company

HDFC Standard Life Insurance Company

Reliance Life Insurance Company

41

Sbi Life Insurance Company

SBI Life Insurance is a joint venture between the State Bank of India and BNP

Paribas Assurance. SBI Life Insurance is registered with an authorized capital of Rs

2000 crores. SBI owns 74% of the total capital and BNP Paribas Assurance the

remaining 26%.

State Bank of India enjoys the largest banking franchise in India. Along with its 7

Associate Banks, SBI Group has the unrivalled strength of over 14,500 branches

across the country, arguably the largest in the world.

BNP Paribas Assurance is the insurance arm of BNP Paribas - Euro Zone’s leading

Bank. BNP Paribas, part of the world’s top 10 group of banks by market value and

part of Europe top 3 banking companies, is one of the oldest foreign banks with a

presence in India dating back to 1860. BNP Paribas Assurance is the forth largest

life insurance company in France, and a worldwide leader in Creditor insurance

products offering protection to over 50 million clients. BNP Paribas Assurance

operates in 41 countries mainly through the bancassurance and partnership model.

SBI Life Insurance’s mission is to emerge as the leading company offering a

comprehensive range of Life Insurance and pension products at competitive prices,

ensuring high standards of customer service and world class operating efficiency.

SBI Life has a unique multi-distribution model encompassing Bancassurance,

Agency and Group Corporates.

SBI Life extensively leverages the SBI Group as a platform for cross-selling

insurance products along with its numerous banking product packages such as

42

housing loans and personal loans. SBI’s access to over 100 million accounts across

the country provides a vibrant base for insurance penetration across every region and

economic strata in the country ensuring true financial inclusion.

Agency Channel, comprising of the most productive force of more than 63,000

Insurance Advisors, offers door to door insurance solutions to customers.

Mission: 

"To emerge as the leading company offering a comprehensive range of life insurance

and pension products at competitive prices, ensuring high standards of customer

satisfaction and world class operating efficiency, and become a model life insurance

company in India in the post liberalisation period".     

Values :

Trustworthiness

Ambition

Innovation

Dynamism

Excellence

43

ICICI Prudential Life Insurance Company

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank -

one of India's foremost financial services companies-and Prudential plc - a leading

international financial services group headquartered in the United Kingdom. Total

capital infusion stands at Rs. 47.80 billion, with ICICI Bank holding a stake of 74%

and Prudential plc holding 26%.

 

We began our operations in December 2000 after receiving approval from Insurance

Regulatory Development Authority (IRDA). Today, our nation-wide team comprises

of 2099 branches (inclusive of 1,116 micro-offices), over 276,000 advisors; and 18

bancassurance partners.

 

ICICI Prudential is the first life insurer in India to receive a National Insurer

Financial Strength rating of AAA (Ind) from Fitch ratings. For three years in a row,

ICICI Prudential has been voted as India's Most Trusted Private Life Insurer, by The

Economic Times - AC Nielsen ORG Marg survey of 'Most Trusted Brands'. As we

grow our distribution, product range and customer base, we continue to tirelessly

uphold our commitment to deliver world-class financial solutions to customers all

over India.

The ICICI Prudential edge comes from our commitment to our customers, in all that

we do - be it product development, distribution, the sales process or servicing. Here's

a peek into what makes us leaders.

 

1. Our products have been developed after a clear and thorough understanding of

customers' needs. It is this research that helps us develop Education plans that offer

44

the ideal way to truly guarantee your child's education, Retirement solutions that are

a hedge against inflation and yet promise a fixed income after you retire, or Health

insurance that arms you with the funds you might need to recover from a dreaded

disease.

 

2. Having the right products is the first step, but it's equally important to ensure that

our customers can access them easily and quickly. To this end, ICICI Prudential has

an advisor base across the length and breadth of the country, and also partners with

leading banks, corporate agents and brokers to distribute our products .

 

3. Robust risk management and underwriting practices form the core of our business.

With clear guidelines in place, we ensure equitable costing of risks, and thereby

ensure a smooth and hassle-free claims process.

 

4. Entrusted with helping our customers meet their long-term goals, we adopt an

investment philosophy that aims to achieve risk adjusted returns over the long-term.

 

5. Last but definitely not the least, our team is given the opportunity to learn and

grow, every day in a multitude of ways. We believe this keeps them engaged and

enthusiastic, so that they can deliver on our promise to cover you, at every step in

life.

 

Vision:

To be the dominant Life, Health and Pensions player built on trust by world-class

people and service.

 

45

This we hope to achieve by:

Understanding the needs of customers and offering them superior products and

service

Leveraging technology to service customers quickly, efficiently and

conveniently

Developing and implementing superior risk management and investment

strategies to offer sustainable and stable returns to our policyholders

Providing an enabling environment to foster growth and learning for our

employees 

And above all, building transparency in all our dealings

 

The success of the company will be founded in its unflinching commitment to 5

core values -- Integrity, Customer First, Boundaryless, Ownership and Passion.

Each of the values describe what the company stands for, the qualities of our

people and the way we work.

 

We do believe that we are on the threshold of an exciting new opportunity, where

we can play a significant role in redefining and reshaping the sector. Given the

quality of our parentage and the commitment of our team, there are no limits to our

growth.

 

Values :

Every member of the ICICI Prudential team is committed to 5 core values:

Integrity, Customer First, Boundaryless, Ownership, and Passion. These values

46

shine forth in all we do, and have become the keystones of our success.

Birla Sun Life Insurance Company

Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint

venture between the Aditya Birla Group, a well known and trusted name globally

amongst Indian conglomerates and Sun Life Financial Inc, leading international

financial services organization from Canada. The local knowledge of the Aditya

Birla Group combined with the domain expertise of Sun Life Financial Inc., offers a

formidable protection for its customers’ future. 

With an experience of over 9 years, BSLI has contributed significantly to the growth

and development of the life insurance industry in India and currently ranks amongst

the top 5 private life insurance companies in the country. 

Known for its innovation and creating industry benchmarks, BSLI has several firsts

to its credit. It was the first Indian Insurance Company to introduce “Free Look

Period” and the same was made mandatory by IRDA for all other life insurance

companies. Additionally, BSLI pioneered the launch of Unit Linked Life Insurance

plans amongst the private players in India. To establish credibility and further

transparency, BSLI also enjoys the prestige to be the originator of practice to

disclose portfolio on monthly basis. These category development initiatives have

helped BSLI be closer to its policy holders’ expectations, which gets further

accentuated by the complete bouquet of insurance products (viz. pure term plan, life

stage products, health plan and retirement plan) that the company offers. 

Add to this, the extensive reach through its network of 600 branches and 1,75,000

47

empanelled advisors. This impressive combination of domain expertise, product

range, reach and ears on ground, helped BSLI cover more than 2 million lives since

it commenced operations and establish a customer base spread across more than

1500 towns and cities in India. To ensure that our customers have an impeccable

experience, BSLI has ensured that it has lowest outstanding claims ratio of 0.00%

for FY 2008-09. Additionally, BSLI has the best Turn Around Time according to

LOMA on all claims Parameters. Such services are well supported by sound

financials that the Company has. The AUM of BSLI stood at Rs. 8165 crs as on

February 28, 2009, while as on March 31, 2009, the company has a robust capital

base of Rs. 2000 crs.

 

 

Vision:

 

To be a leader and role model in a broad based and integrated financial services

business.

Mission:

To help people mitigate risks of life, accident, health, and money at all stages and

under all circumstances

Enhance the financial future of our customers including enterprises

 

48

Values:

Integrity

Commitment

Passion

Seamlessness

Speed

49

HDFC Standard Life Insurance Company

HDFC Limited, India’s premier housing finance institution has assisted more than

3.3 million families own a home, since its inception in 1977 across 2400 cities and

towns through its network of over 250 offices. It has international offices in Dubai,

London and Singapore with service associates in Saudi Arabia, Qatar, Kuwait and

Oman to assist NRI’s and PIO’s to own a home back in India. As of December 2008,

the total asset size has crossed more than Rs. 95,000 crores including the mortgage

loan assets of more than Rs. 82,800 crores. The corporation has a deposit base of Rs.

17,551 crores, earning the trust of more than 9,00,000 depositors. Customer Service

and satisfaction has been the mainstay of the organization. HDFC has set

benchmarks for the Indian housing finance industry. Recognition for the service to

the sector has come from several national and international entities including the

World Bank that has lauded HDFC as a model housing finance company for the

developing countries. HDFC has undertaken a lot of consultancies abroad assisting

different countries including Egypt, Maldives, and Bangladesh in the setting up of

housing finance companies.

Standard Life Group (Standard Life plc and its subsidiaries)

The Standard Life Group has been looking after the financial needs of customers

for over 180 years. It currently has a customer base of around 7 million people who

rely on the company for their insurance, pension, investment, banking and health-

care needs. Its investment manager currently administers £125 billion in assets. It is

a leading pensions provider in the UK, and is rated by Standard & Poor's as 'strong'

with a rating of A+ and as 'good' with a rating of A1 by Moody's. Standard Life was

50

awarded the 'Best Pension Provider' in 2004, 2005 and 2006 at the Money Marketing

Awards, and it was voted a 5 star life and pension’s provider at the Financial

Adviser Service Awards for the last 10 years running. The '5 Star' accolade has also

been awarded to Standard Life Investments for the last 10 years, and to Standard

Life Bank since its inception in 1998. Standard Life Bank was awarded the 'Best

Flexible Mortgage Lender' at the Mortgage Magazine Awards in 2006.

Vision:

'The most successful and admired life insurance company, which means that we are

the most trusted company, the easiest to deal with, offer the best value for money,

and set the standards in the industry'.

'The most obvious choice for all'.

Values:

Integrity

Innovation

Customer centric

People Care “One for all and all for one”

Team work

Joy and Simplicity

51

Reliance Life Insurance Company

Reliance Life Insurance offers you products that fulfill your savings and protection

needs. Our aim is to emerge as a transnational Life Insurer of global scale and

standard.

Reliance Life Insurance is an associate company of Reliance Capital Ltd., a part of

Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of India’s leading

private sector financial services companies, and ranks among the top 3 private sector

financial services and banking companies, in terms of net worth. Reliance Capital

has interests in asset management and mutual funds, stock broking, life and general

insurance, proprietary investments, private equity and other activities in financial

services.

Reliance - Anil Dhirubhai Ambani Group also has presence in Communications,

Energy, Natural Resources, Media, Entertainment, Healthcare and Infrastructure.

Vision:

Empowering everyone live their dreams.

Mission:

Create unmatched value for everyone through dependable, effective, transparent and

profitable life insurance and pension plans.

Goal:

Reliance Life Insurance would strive hard to achieve the 3 goals mentioned below:

Emerge as translational Life Insurer of global scale and standard

Create best value for Customers, Shareholders and all Stake holders

Achieve impeccable reputation and credentials through best business practices

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53

New Policies Issued

As in the chart we can see here that in 2005-06 new policies issued by LIC is 31590707,

and in year it is 38229292 with rise of 21.01% and in year 2007-08 it is 37612599

which is 1.61% decrease than year 2006-07.

While private players have continuously growth. In year 2005-06 3871410 new policies

were issued by private players in year private players gain rise of 104.64% with

7922274 policies and in year 2007-08 new policies issued by private players are

13261558 which is 67.40% more than year 2006-07.

54

Premium

First year premium

Amount in corers

In year 2005-06 first year premium of LIC including single premium was 28515.87

corers. It increases by 97.17% in year 2006-07 with amount of 56223.56 corers. And in

year 2007-08 single premium of LIC is of Rs. 59996.57 corers. which is 6.71% more

than 2006-07. while private players have single premium of Rs. 10269.67 corers and in

55

year 2006-07 it increase by 88.84% which amounted Rs. 19425.65 and in year 2007-08

they achieve increase of 73.56% amounted Rs. 59996.57 corers.

56

corers

Single premium

Amount in corers

There are a number of options available when choosing life insurance.

A single premium policy is an option that allows a person to invest a lump sum so that

the policy is always paid up. This eliminates the need to be concerned with periodic

payments, or the negative outcome that can result from missing periodic payments with

other types of policies.

In year 2005-06 LIC had single policy business of Rs. 14787.84 corers. In year 2006-07

it increased with 78.10% with amount of Rs. 26337.21 and in year 2007-08 LIC gain

rise of 28.24% with amount Rs. 33774.56 corers.

57

While in single premium business Private players had business of Rs. 2742.78 corers

and it rise in year 2006-07 by 42.96% which amounted 3921.1 corers and in year 2007-

08 private players did single premium business of Rs. 5049.8 corers which is 27.82%

more than year 2006-07.

58

Regular premium

Amount in corers

In year 2005-06 LIC had regular premium of 13728.06 corers and in year 2006-07 it

gain sharp rise of 117.70% with Rs. 29886.35 corers but in year 2007-08 LIC had a

decrease of 12.26% in Regular Premium with Rs. 26222 corers which is lesser than year

2006-07 by 3664.35 corers.

While in regular premium Private players performed well. In year 2005-06 private

players earned regular premium of 7526.88 corers. And in year 2006-07 it was

sharply increase by 105.59% with Rs. 15474.83 corers and in year 2007-08 it also

59

increase by 85.24% amounted Rs. 28666.15, while LIC has a decrease of 12.26%. in

Regular premium Private Players perform well.

60

Renewal premium

Amount in corers

Term life insurance policy offering the policyholder the option to renew for a specific

period of time-frequently one year-for a particular length of time. Some term life

policies stipulate a maximum age benefit. Some policies offer fixed premium rates for a

certain number of years, usually ten, after which they are renewable at a higher

premium rate. Other term policies are renewable every year, and charge escalating

premium rates as the policyholder ages.

61

So in this renewal premium business LIC is far better than private players. In year

2005-06 LIC has renewal premium business of 62276.35 corers which increases

14.97% and RS. 71599.27 corers and in 2007-08 LIC has good rise in Renewal

premium that is 25.41% amounted to Rs. 89793.42 corers. While Private players have

Rs. 4813.86 corers which has a sharp increase of 83.33% in year 2006-07 which is RS.

8825.05 corers and in year 2007-08 again it has a big increase of 102.16% of rs

17845.47%

62

Total premium

Amount in corers

LIC has Rs. 99792.22 corers as total premium in year 2005-06 which increases by

40.79% in year 2006-07 which is 127822.84 corers. And in year 2007-08 it has rise of

17.19% which amounted to 149789.99corers.

Private players has 15083.53 corers as total premium in year 2005-06 and it increased

by 87.08% which amounted to Rs. 28218.75 and it again become almost double in year

2007-08 increased by 82.50% amounting Rs. 51561.42 corers.

63

Commission Expenses

Operating Expenses

64

First year premium commission

Amount in corers

65

Single premium commission

Amount in corers

66

Regular premium commission

Amount in corers

67

Renewal premium commission

Amount in corers

68

Total premium commission

Amount in corers

69

Operating expenses

Amount in corers

70

Comparison of ratios

Commission Expense Ratio

Commission expense × 100

Premium underwritten

Operating Expense Ratio

Operating expense × 100

Premium underwritten

71

Commission Expense Ratios

First year Premium

Amount in Percentage

72

Single Premium

Amount in Percentage

73

Regular Premium

Amount in Percentage

74

Renewal Premium

Amount in Percentage

75

Total Premium

Amount in Percentage

76

Operating Expense Ratios

Amount in Percentage

77

Market share of Life Insurers

In Year 2007-08

First Year Premium

Amount in corers

78

Single Premium

Amount in corers

79

Regular Premium

Amount in corers

80

Renewal Premium

Amount in corers

81

Total Premium

Amount in corers

82

Claims Paid By Life Insurers

83

Market share of LIC and Private Players In Terms

of Total Premium From year 2000-01 to 2007-08

84

Profit Of Life Insurers In year 2007-08

85

-445

-1395

-191-244

-257

-768

-297

34

-78

-339

21

-202

3 5

-242

-30 -26

845

-1500-1400-1300-1200-1100-1000

-900-800-700-600-500-400-300-200-100

0100200300400500600700800900

Profit of year 2007-08

Life Fund Of LIC

86

Findings And Conclusion

There is only public company exist in the Indian Life Insurance market which is Life

Insurance Corporation Of India and there are 21 private insurance companies role

playing as life insurer in the Indian life insurance market.

Like as , Sbi life insurance company, HDFC Standard life Insurance company, ICICI

Prudential company, Reliance Life Insurance company, Birla sunlife Insurance

company etc,

Since, 1958 LIC is playing role as life insurance so that it has created its monopoly in

the Indian Life Insurance Market.

As things stand today LIC is still on strong footing vis-à-vis its competitors. However,

to retain its market leader status the LIC needs to acquire competitive ness. With new

contenders entering the fray there is need to act more market savvy. Rather than getting

bogged down by competition the LIC needs to see the challenge as an opportunity.

Insurance in India was largely misconstrued as an investment or a tax saving device

rather than a security hedge. In fact, insurance agents were promoting policies on life as

instruments of returns and tax saving. Insurance consciousness as such was largely

missing from the market. The new entrants with their aggressive penetration strategies

are at least contributing to the cause of LIC by creating insurance consciousness in the

minds of a wide cross section of consumers. Privileged by its monopoly status LIC did

not bother much about creating an insurance consciousness, as its objective was to

insure any how that was happening. This complacency now has to go and LIC must opt

for marketing insurance as insurance.

The insurance consciousness is creating the market is evident from the fact that there

was a spurt in business underwritten in March 2008 at Rs. 201351.41 corer which was

87

growth of 29.01%. Private sector increased their total premium from 28253.01 to

51561.42 that is 82.50% increase while LIC increased its premium income from

127822.84 to 149789.99, which is increase of 17.19%.

Private players also increased their market share from 18.1% to 25.61%.

However, LIC needs to worry about the fact that the new entrants have increased their

share by almost 26% during 2007-08. in the year 2007-08 market share of private

players increased by 41.50% than year 2006-07.

No mean performance given the fact that the new players are still in the process of

finding their feet. If the trend continuous the LIC needs to take guard and prepare for

strike.

88

Bibliography

Research Methodology – Kothari C.R.2007, Research Methodology, Techniques and Methods, New Delhi, 2007

www.licindia.com www.birlasunlife.com www.sbilife.co.in www.reliancelife.co.in www.hdfcinsurance.com www.iciciprulife.com www.irda.org

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