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