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International Journal of World Research, Vol: I Issue XXXVI, December 2016, Print ISSN: 2347-937X

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LIFE INSURANCE CORPORATION OF INDIA – AN OVERVIEW

1 Dr. T. SIVAKUMAR

1 2

Assistant Professor,

Department of Commerce, D.B. Jain College, Thorapakkam,

Chennai - 600 097

Prof. T.VELAYUTHAM2

Assistant Professor,

Department of Commerce, D.B. Jain College, Thorapakkam,

Chennai - 600 097

ABSTRACT

Life Insurance Corporation of India plays a vital role in the development of economy of the Country. Insurance is a business

of large numbers and generates huge amounts of funds overtime, making its financial muscle very strong. These funds arise out of

policyholder’s funds in the case of life insurance, and technical and free reserves in the non-life segment. The time lag between the

procurement of premium and the payment of claim provides an interval during which the funds can be deployed to generate income.

The power of the sector is evident from the fact that insurance companies are among the largest institutional investors in the world.

Assets managed by insurance companies are estimated to account for over 50 percent of the world’s top 100 asset managers. In view

of this fact, the investment function has a crucial role to play. In life insurance although there was no element of compulsion to buy

insurance, whoever needed it had only one supplier to fall back upon. Therefore, the market network of Indian insurers though

extensive, remained weak in terms of efforts. With the insurance industry in India shedding its monopolistic character, its market

dynamics are changing fast.

KEY WORDS: Insurance, IRDA, Investment, Economic Reforms.


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INTRODUCTION

Insurance in India refers to the market for insurance in India which covers both the public and private sector organizations. It

is listed in the constitution of India in the seventh schedule as a union list subject. The insurance sector has gone through a number of

phases by allowing private companies to solicit insurance and also allowing foreign direct investment. India allowed private

companies in insurance sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014. However, the largest life-

insurance company in India, Life Insurance Corporation of India is still owned by the government and carries a sovereign guarantee

for all insurance policies issued by it. Insurance is a financial arrangement that redistributes the cost of unexpected losses. The

insurance arrangement pool, which is combine the numerous exposures. Throughout human history unexpected economic losses have

occurred. Such losses would continue to occur whether or not a system of insurance had ever been devised, but through the operation

of an insurance system, losses can be predicted before they occur. The predictability of losses in advance of their occurrence is a basic

necessity of an insurance system‟s operation. Because of an insurance system allow the cost of losses to be financed and redistributed

in advance of their occurring. An insurance system accomplishes the redistribution of the cost of losses by collecting a premium

payment from every participant in the system. In exchange for the payment of the premium, the insured receives a promise from the

insurance system to be compensated in the event of a loss. In most insurance system only a small percentage of those insured suffer

losses. Thus an insurance system redistributes the cost of losses from the unfortunate few members who experienced them to all the

members of the insurance pool who have paid premiums.

INSURANCE

Insurance is as old as the civilization. It was present in the form of mutual help. Joint stock companies and corporation are the

recent form of the insurance. The “Yogakshema” has been the oldest term of insurance used in the Rig-Veda for some kind of

insurance. Manu has emphasized that a special charge be made on goods carried from one then to another to ensure their safe carriage.

Insurance is one of the most interesting transactions engaged in by people. Insurance may be defined with emphasis on its financial

nature or with emphasis on its legal nature.

EVOLUTION OF LIFE INSURANCE

The first insurers of life were the marine insurance underwriters who started issuing life insurance policies on the life of

master and crew of the ship, and the merchants. The early insurance contracts took the nature of policies for a short period only. The

underwriters issued annuities and pension for a fixed period or for life to provide relief to widows on the death of their husbands. The

first life insurance policy was issued on 18th June 1583, on the life of William Gibbons for a period of 12 month. It was in the

eighteenth century, societies began to be formed for issuing life insurance policies. Among such societies the Amicable Society

(1705), the Equitable Life Assurance Society (1762), the West Minister Society (1792) was the important societies. The premium rates

were varied in view of reputation and the health condition of the insured. During the early years of nineteenth century, a large number

of life insurance companies were formed in India. Some of these companies preferred to amalgamate their business with other

companies and a good number failed to function effectively. In order to stabilize and strengthen the insurance business, Life Insurance

Companies Act, 1923 was passed and later amended it in 1946, 1958 and 1967.

GROWTH OF LIFE INSURANCE IN INDIA

Growth of Life Insurance Sector is classified into six stages and it has represented in the below chart.

Chart 1

Before 1870

1952 onwards 1870-1900

LIC

1900-1918

1939-1952

1919-1938


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First Stage

The first stage of life insurance was implemented and developed by Aryans. The main objective was to create co-operation

among the village people and compensate their unexpected loss. They have evolved a system of village and community life, which

was proof against the negative effects of time that gave sustenance to everyone. Other civilized people of the world also had

independently conceived the idea of collective co-operation.

The Indian society guided by its basic philosophy of kindness, evolved into the joint family system. Apart from the institution

of joint family, the caste system, village panchayat, temple and charitable institutions combined to provide protection from calamities

to a person and his dependants. In tracing out the origin of life insurance in its modern form, one comes across a provision of 1818,

which provided protection to the English widows. The first foreign insurance company that started in Indian soil was the Oriental

Insurance Company that started in Indian soil was the “Oriental Insurance Company in Calcutta mainly by the Europeans to help the

widows and orphans of their community. The Universal Life Assurance Company, which started operation in 1840 in India was taken

by North British in 1901 and become a part of Life Insurance Corporation (LIC) in 1956.

Second Stage (1870-1900)

The second stage of growth of LIC in India was the steady development oriented. The Bombay Mutual Assurance Society

was the first Indian insurance company, which was registered under the Indian Company‟s Act, 1806. Pandit Ishwar Chandra

Vidyasagar, a noted social reformer and educationist, founded the “Hindu Family Annuity Fund” in 1872 in Calcutta. The company

started to provide financial help to Hindu widows and orphans through annuities. The fund was created by voluntary donations and

subscriptions. The next most significant expansion was the establishment of the Oriental Government Security Life Assurance

Company, on May 5, 1874 by the distinguished actuary Mr. D.M. Slater and Sir Phirozshah Mehta. At this point of time the

government exercised practically no control. This is the infant stage of life insurance.

Third Stage (1900–1918)

In this stage Life Insurance business in India had grown tremendously which is nearly 20th century. This period witnessed

two vital events namely the birth of Indian National Congress and the “Swadeshi” Movement. These developments prepared the

ground for accepting Indian insurance in preference to foreign ones. This gave rise to birth of more insurance companies. The United

Indian in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance in Lahore were established in

1906, Hindustan Insurance Company at Calcutta, the Mercantile at Bombay came in 1908. Two features of insurance during this

period were the operation of business on risk spreading principle and the enactment of two statutes, namely the Life Insurance

Companies Act of 1912 and the Provident Fund Act of 1912.

Fourth Stage (1919-1938)

Due to First and Second World Wars Indian economy was going to bad condition and trade also affected. To fulfill their

financial deficit, industrialists started their own insurance companies like the New Indian, the Jupiter, General Insurance Company etc.

In 1923 an Act was passed to collect insurance statistics. Companies that started during the period were the Laxmi (Andhra), The

British India, the Zenith and the Prudential of England. Insurance business was marked with high rebates, excessive commission,

increased operating expenses. Business became diversified but foreign insurance companies attracted more business than the Indian

counterparts. The government for the first time passed a comprehensive legislation on insurance in 1928. The promotion of new life

insurance companies continued to be almost a craze. Several insurance companies were formed, but many of them failed. This

unhealthy growth was harmful to the interest of policyholders and insurance business in India.

Fifth Stage (1939-1952)

The World War-II, the insurance legislation, the low mortality rate, and keen competition were the characteristics of

insurance during this period. Inflation and increased business was helpful to insurance. During 1941 to 1945, 25 new companies were

started. Bad features like speculation, inflation and financial irregularities restricted industrialist to invest funds. Banks and insurance

companies interlocked the investment. So in 1945 Sir Cowasji Jahansir Committee was appointed to examine the insurance structure.

It was that found interlocking of investment was harmful. Hence, government passed an Act in 1950. As a result of this few

companies were started during the period and some existing offices were consolidating their position. Independence of India followed

a partition of subcontinent.

Sixth Stage (1952 - onwards) This is the period immediately succeeding nationalization and the beginning of the plan era. After independence, the business

of Indian insurance grew at a faster pace as competition among Indian companies intensified and as Indian life insurance companies

dislodged the non-Indian insurers. Despite the strides by the Indian companies, insurance business remained an urban phenomenon,

there was an immense scope to accelerate life insurance business in the country, moreover, and this limited development was marked

by many malpractices involving misuse of insurance funds, excessive cost, deficiencies and frequent liquidation of insurance

companies. This shook public confidence. Thus LIC came into being in a scenario marked by insolvencies, increasing public distrust

and mainly confined to public area. With a view to spread insurance to rural areas, to operate it systematically, and to achieve the

objectives of socialistic pattern of society, the government of India decided to nationalize the life insurance business. Resultantly, after

considerable controversy with people both for and against nationalization, the President of India declared an ordinance on 19.01.1956

taking over management and control business of Life Assurance in India including foreign business of Indian insurers and Indian

business of foreign insurers and then nationalized on 01.09.1956 when the Life Insurance Corporation came into existence. It was


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formed by bringing together over 243 odd private life insurers and provident societies under one nationalized monopoly corporation.

By passing an act in the parliament, the LIC was formed with a capital contribution of Rs. 5 crore by the government of India.

LIFE INSURANCE IN INDIA

Life insurance in its current form came in India from United Kingdom (UK) with the establishment of a British firm, Oriental

Life Insurance Company in 1818 followed by Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance

Society in 1829 and Oriental Life Assurance Company in 1874. Prior to 1871, Indian lives were treated as substandard and charged an

extra premium of 15 percent to 20 percent. Bombay Mutual Life Assurance Society, an Indian insurer that came into existence in

1871, was the first to cover Indian lives at normal rate. The Indian Life Assurance Companies Act, 1923 was the first statutory

measure to regulate life insurance business. Later, in 1928 the Indian Insurance Companies Act was enacted, inter alia, to enable the

government to collect statistical information about life and non-life insurance business transacted in India by Indian and foreign

insurers, including the provident insurance societies. In order to protect the interest of insuring public, earlier legislation was

consolidated and amended by Insurance Act, 1938 with comprehensive provisions for detailed and effective control over the activities

of insurers. In turn to administer the aforesaid legislation, an insurance wing was established and attached first with the Ministry of

Commerce and then Ministry of Finance. This ministry was administratively responsible for policy matters pertaining to insurance.

The actuarial and operational matters relating to the insurance industry were looked after by an attached office in Shimla, headed first

by Actuary to the Government of India, then by superintendent of Insurance and finally by the Controller of Insurance. The act was

amended in 1950, making far reaching changes such as requirement of equity capital for companies, carrying on life insurance

business, ceilings on shareholdings, stricter control on investment of life insurance companies, etc.,

The sector was practically without government control and intervention till 1870, when Life Insurance Act was passed. The

act as such did not impose any companies to disclose their financial and other details to the public and get their financers evaluated by

an actuary. The companies were required to be transparent in their dealings and make their accounts and valuation report available to

the Board of Trade.

TYPES OF LIFE INSURANCE IN INDIA

Life Insurance in India has classified into two catagories like public sector and private sector which is shown in the below

chart.

Chart 2

PROFILE OF LIC

A brief profile of Life Insurance Corporation of India has explained in the below table. It was started in the year 1st

September 1956 by passing Life Insurance act at parliament. In the year 2015 it has earned the profit of US$ 9.257 Billion and total

revenue of US$ 88.400 Billion. Subsidiaries of LIC are Housing Finance, Pension Fund Ltd, Cares Services and Mutual Funds.

LIC

Public Sector Private Sector

Aviva India, Bajaj Alliance, Bharti AXA, Edelweiss Tokio, Exide, HDFC

Standard, ICICI prudential, IDBI Federal, India First, Kotak Mahindra old

Mutual, PNB Met Life, Reliance Nippon, Royal Sundaram Alliance, SBI,

Future Generali India Insurance, Cholamandalam MS General Insurance,

Cigna TTK

LIFE INSURANCE CORPORATION OF INDIA


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Table 1

Profile of LIC

Type State Owned Enterprises

Industry Financial Services

Founded 1st Sep.1956

Headquarter Mumbai

Key People V.K.Sharme (MD)

Usha Sangwan (MD)

Products Life Insurance

Health Insurance

Investment Management

Mutual Fund

Revenue US$ 88.400 Billion (2015)

Profit US$ 9.257 Billion (2015)

Total Assets Rs.2,009,119 Crore (US$ 300 Billion) (2016)

Owner Government Of India

No. of Employees 120408 March 2014

Subsidiaries LIC Housing Finance

LIC Pension Fund Ltd

LIC International

LIC Cares Services

LIC Mutual Funds

Source: Annual Report of LIC 2014

STRUCTURE OF LIC

Structure of Life Insurance Corporation of India is explained in the below chart. It has Board of Directors, Chairman,

Managing Directors, etc., zonal offices are situated at Mumbai, Hyderabad, Delhi, Bhopal, Kanpur, Patna, Kolkata and Chennai.


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Chart 3

Source: Importance of Insurance, Unpublished M.Phil Thesis, PP: 34-37

OBJECTIVES OF LIC

1. To spread insurance to rural areas.

2. To encourage public savings to finance the five year.

3. To provide complete Security to policyholders.

4. To prevent malpractices, misuse of powers and positions etc.

5. To avoid wasteful efforts in competition and conduct the business with utmost economy.

6. To regulate insurance on scientific basis.

INVESTMENT OF LIC

Investment of LIC is broadly classified into two catagories like sector wise and instrument wise. Further, Sector wise can be

split into public, private, joint and cooperative. Likewise, instrument wise can divided into stock exchange securities and loans. It has

clearly shown in the below table.

Board of

LIFE INS URANCE CORPORATION OF INDIA

Chairman

Managing

Directors

Central office

Zonal Offices

Mumbai Hyderabad Delhi Bhopal Kanpur Patna Kolkata Chennai

Divisional Offices

Branch Offices


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Table 2

Investment of LIC

(Rs. in Billion)

Year

Sector wise Instrument wise

Total Public Private Joint Co-operative

Stock

Exchange

Securities

Loans

2006-07 4338.1 842.94 0.75 35.55 4804.27 413.08 5217.34

2007-08 5033.88 1284.68 0.74 38.18 5094.67 452.18 6357.48

2008-09 5720.5 1871.41 0.72 36.29 7157.1 471.81 7628.92

2009-10 6783.74 2361.35 0.71 36.67 8720.62 458.55 9182.47

2010-11 7990.09 2675.18 0.82 36.67 10264.92 437.84 10702.76

2011-12 8996.55 3005.1 0.85 35.67 11623.88 414.3 12038.17

2012-13 10187.81 3293.08 0.86 8.22 13073.33 416.64 13489.97

2013-14 11942.61 3160.24 0.94 7.54 14688.86 422.47 15111.33

2014-15 13697.13 3379.97 0.94 6.85 16680.47 404.42 17084.89

2015-16* 15788.42 3458.52 0.96 11.59 18911.61 347.88 19259.49

Source: Annual Report of LIC. * 2015-16 Data are Provisional

Analysis of the table 2 reveals that investment of LIC showed the total of Rs.5217.34 billion in the year 2006-07 and

Rs.19259.49 billion in the year 2015-16. Investment of LIC is increased throughout the period. This growth is clearly notified their

performance and also their social responsibilities.

Chart 4

Investment of LIC

Table 3

Employees Status of LIC (as on March 2014)

Catagoery of Employees No. of Male No. of Female Total

Class - I Officers 25123 6297 31420

Class - II Development Officers 25588 1033 26621

Class - III/Employees Officers 44805 17542 62347

Agents 1092703 103213 1195916

Source: www.wikipedia.com

0

10000

20000

30000

40000

50000

60000

TOTAL

INSTRUMENT WISE

SECTOR WISE


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Chart 5

IMPACT OF ECONOMIC REFORMS ON LIFE INSURANCE

The govt. of India in 1993 had set up a high powered committee headed by R.N. Malhotra former Governor RBI, to examine

the structure of the insurance industry and recommend changes to make it more efficient and competitive keeping in view structural

changes in other parts of the financial system of the economy. The committee submitted its report in January 1994 recommending that

private insurance be allowed to coexist along with Govt. companies like LIC and GIC companies. This recommendation had been

prompted by several factors such as need or greater and deeper insurance coverage in the economy and a much greater scale of

insurance sector is at least partly driven by fiscal necessity of tapping the big reserves of savings in the economy. Committee‟s

recommendations were as follows:-

Raising the capital base of LIC and GIC up to Rs 200 cr. half retained by the govt. and rest sold to the public at large with

suitable reservations for employees.

Private sector is granted permission to enter insurance industry with a minimum paid up capital of Rs. 100 cr.

Foreign insurance companies are allowed to enter by floating an Indian company‟s preferably joint venture with Indian

partners.

Steps to be initiated to setup a strong and effected insurance regulatory in the form of statutory autonomous board on the

lines of SEBI. Limited number of private companies to be allowed in the sector, but no firm be allowed to operate in both

lines of insurance (life or non- life).

Tariff Advisory Committee is delinked from GIC to function as a separate statutory body under necessary supervision by

the insurance regulatory authority.

All insurance companies be treated on equal footing and governed by the provisions of the insurance Act. No special

dispensation is given to govt. companies.

Setting up of a strong and effective regulatory body with independent sources for financing before allowing private

companies into sector.

The forms of controls and regulations exercised over insurance industry have differed from country to country. The nature

and pattern of controls in a country are shaped by its political and economical philosophy, economic and social compulsions, pressure

different countries have evolved their own regulatory mechanism being application on insurance industry. Some of the countries have

and healthy competition amongst them, while other has encouraged self control mechanism through greater role being assigned to

services grew as early as in 16th century.

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA)

The Government of India realized the necessities of setting-up Insurance Regulatory and Development Authority (IRDA) in

1999 The IRDA was set-up to provide for the establishment of an Authority, for protecting the interests of holders of insurance

policies, to regulate, promote and insurer orderly growth of the insurance industry and for matters connected there with or incidental

there to. With the birth of IRDA, the Government amended the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the

General Insurance Business (Nationalization) Act, 1972 for the sake of proper control at apex level. IRDA exercise the supervisory

control or insurance companies and these powers flow from Insurance Act, 1938 as well as from IRDA Act, 1999 states. “Subject to

the provision of this Act and any other law for the time being in force, the Authority shall have the duty to regulate promote and

ensure orderly growth of insurance business and reinsurance business”. Regulatory and supervisory powers of the authority are wide

and pervasive.

25123 25588

44805

1092703 1137508

Employees Status of LIC

Class - I Officers

Class - II Development Officers

Class - III/Employees Officers

Agents


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CONCLUSION:

Finally the article concluded that the LIC faced many problems since its existence. At the same time, there has been a

marvelous growth in the life insurance business in India after the entry of private sectors. Due to 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. The market share of Life Insurance

Corporation of India has been showing a constant fall after the entry of private players. Maximize mobilization of people‟s savings by

making insurance linked savings adequately attractive. Deploy the funds 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 policy holders. Act as trustees of the insured public in their individual and

collective capacities. The performance of LIC has been affected badly in terms of premium income and number of policies, after

privatization of the insurance sector.

REFERENCES:

1. Philip Kotler and Gary Armstrong, Principles of Marketing, 9th ed., Prentice-Hall of India, 2001, pp. 18-32.

2. The Annual Report of LIC 2006-14.

3. www.wikipedia.com

4. Life Insurance Administration, Insurance Institute of India, Mumbai, 1988, pp. 1-4.

5. Sharma, N.C. The Selling of Life Insurance in India (Part II), Yogakshema, May 2003, No.5, pp.5-8.

6. Vijayarani, J., „Cost Effective Distribution Channels of Life Insurance Products‟, The Journal of Insurance Institute of India,

Vol. No. XXIV, July-December 1999, pp.53-62

7. Handbook of IRDA 2014.

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