chapter no. iii progress of lic of india. -...
TRANSCRIPT
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Chapter No. III
Progress of LIC of India.
3.1 Introduction:
Insurance means managing risk. For instance, in life insurance segment,
the insurance company tries to manage mortality (death) rates among the wide
array of clients. The insurance company works in a manner by collecting
premiums from policy holders, investing the money, and then reimbursing this
same money once the person passes away or the policy matures. The greater the
probability for a person to have a shorter life span than the average mark, the
higher premium that person has to pay. The case is the same for all other types
of insurance, including automobile, health and property. Ownership of
insurance companies is of two types are - Shareholder ownership and
Policyholder ownership.1
Life Insurance Corporation of India is perhaps India’s largest financial
institution. It came into existence when a large number of life insurance
companies were taken over by Government of India.2 The nationalization of
private insurance companies started a new era of insurance business i.e. LIC of
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India. In its early years, being a monopoly public sector company, it did not
face any competition. After opening the sector to private players, LIC of India
faced some competition.
The growth of the insurance sector in India has been phenomenal. The
insurance industry has undergone a massive change over the last few years and
the metamorphosis has been noteworthy. There are numerous private and
government insurance companies in India that have become synonymous with
the term insurance over the years. Offering a diversified product portfolio and
excellent services the many insurance companies in India have managed to
make their way into almost every Indian household.
With the rapid growth of the Indian Insurance industry, in particularly
serving a Middle Class that is growing on both size and wealth every year, it is
hardly surprising that Indian insurance companies are growing, and playing an
increasingly important role in the nation's financial services industry. This
increasing market is creating considerable competition among Indian insurance
companies in an industry that 20 years ago was relatively small. Customers buy
life insurance with great hope and aspirations. In India endowment products
which club savings with life protection are the most popular variety with
savings. People purchase life insurance to provide for crucial long term needs
such as kids’ higher education and marriages, retirement, house building, life
style or to leave behind an estate for the heirs.
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Life insurance is what that protects your family in your absence. Life
insurance policies provide a certain amount of money to your family in case
something happens to you. These come as a great financial relief during the
hour of needs. There are a number of insurance companies in India that offer
life insurance policies to its customers. The top insurance policies in India also
act as flexible money-saving scheme. There are a number of life insurance
policies available in India. Different policies come with different features. The
coverage amount and policy term also vary. There are several popular insurance
companies that offer top life insurance policies in India. Before going for any
life insurance policies, compare various policies offered by the top insurance
companies.
3.2 The need for Life Insurance:
Why do we need Life Insurance? Consider this. Under any
circumstances, the loss of a loved one is a traumatic experience. But, if your
family is also left without sufficient money to meet basic living needs or
prepare for future goals, they will have to cope with a financial crisis at the
same time. If faced with a financial crunch, your family might have to move to
a less desirable home, cut back on the quality of life, your children might have
to abandon higher studies plans. Your family might even be forced to go into
debt simply to pay the expenses, like medical bills, that result from your death. I
hope that by now you realize that the lack of sufficient life insurance coverage
when a loved one dies can have devastating consequences for a
family…consequences that can last for years. Hope now you get why we need
life insurance.
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3.3 What is Life Insurance?
Life Insurance is a way of transferring the risk attached with your life to
the insurer.3 In other words, life insurance is a policy bought from a life
insurance company, which provides financial stability to a family after a
member’s death, usually the bread winner of the family. Its function is to help
beneficiaries financially after the owner of the policy dies. If the policy owner
dies while the contract is in force, the insurance company pays a specified sum
of money free of income tax to the person or persons you name as beneficiaries.
The cash benefit helps provide for the family’s future needs as well, including
college education of children and spouse’s retirement needs.
3.4 Objectives of LIC:
Following are the objectives of LIC:
Spread Life Insurance widely and in particular to the rural areas and to
the socially and economically backward classes with a view to reaching
all insurable persons in the country and providing them adequate
financial cover against death at a reasonable cost.
Maximize mobilization of people's savings by making insurance-linked
savings adequately attractive.
Bear in mind, in the investment of funds, the primary obligation to its
policyholders, whose money it holds in trust, without losing sight of the
interest of the community as a whole; the funds to be deployed to the best
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advantage of the investors as well as the community as a whole, keeping
in view national priorities and obligations of attractive return.
Conduct business with utmost economy and with the full realization that
the moneys belong to the policyholders.
Act as trustees of the insured public in their individual and collective
capacities.
Meet the various life insurance needs of the community that would arise
in the changing social and economic environment.
Involve all people working in the corporation to the best of their
capabilities in furthering the interests of the insured public by providing
efficient service with courtesy.
Promote amongst all agents and employees of the corporation a sense of
participation, pride and job satisfaction through discharge of their duties
with dedication towards achievement of Corporate Objectives.
3.5 Various Insurance Plans of LIC for Individuals:
As individuals it is inherent to differ. Each individual's insurance needs
and requirements are different from that of the others. LIC's Insurance Plans are
policies that talk to you individually and give you the most suitable options that
can fit your requirement.4
Jeevan Arogya Plan.
Endowment Plus.
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Children Plans:
o Jeevan Anurag.
o Komal Jeevan.
o Jeevan Kishor.
o Jeevan Chhaya.
o Child Career Plan.
o Child Future Plan.
Education Annuity Plan
Jeevan Aadhar.
Jeevan Vishwas.
The Endowment Assurance Policy.
Jeevan Mitra.
Jeevan Anand.
New Janraksha Plan.
Jeevan Amreet.
Money Back Plans.
Jeevan Surbhi .
Beema Bachat.
Samridhi Plus.
Pension Plus.
Jeevan Madhur.
Jeevan Mangal.
Group Schemes.
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Following are the details of Anmol Jeevan Policy:
Table No. 3.01:
Anmol Jeevan Policy.
Product Name Anmol Jeevan Regular Premium
Coverage Amount 10,00,000
Minimum Policy Term 5 years
Maximum Policy Term 25 years
Minimum Entry Age 18 years
Maximum Entry Age 55 years
Maximum Exit Age 65 years
Premium Frequency Options Yearly / Half-yearly
Sources: www.licindia.in
3.6 Pre-Independence Scenario:
Pioneering efforts of reformers and social workers like Raja Ram mohan
Ray, Dwarakanath Tagore, Ramatam Lahiri, Rustomji Cowasji and other led to
entry of Indians in insurance business. First Indian insurance company under
the name “Bombay Life Insurance Society” started its operation in 1870, and
started covering Indian lives at standard rates. Later “Oriental Government
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Security Life Insurance Company”, was established in 1874, with Sir
Phirozshah Mehta as one of its founder directors and later emerged as a leading
Indian insurance company under the name “Bombay Life Assurance Society”
started its operations in 1870.5
With the patriotic fervor of Non-Corporation Movement (1919) and Civil
Disobedience Movement (1929), number of Indian companies entered the
insurance area. Eminent figures in political area like Mahatma Gandhi and
Pandit Nehru openly encouraged Indians to enter the fray. In 1914 there were
only 44 companies; by 1940 this number grew to 195. Business in force during
this period grew from Rs.22.44 crores to Rs.304.03 crores (1628381 polices).
Life fund steadily grew from Rs.6.36 crores to Rs.62.41 crores. In 1938, the
insurance business was heavily regulated by enactment of insurance Act
1938(based on draft bill presented by Sir N.N.Sarcar in Legislative Assembly in
January 1937). From here onwards the growth of life insurance was quite steady
except for a setback in 1947-48 due to aftermath of partition of Indian. In 1948,
there were 209 insurances, with 712.76 crores business in force under 3,016,
000 policies. The life fund by then grew to 150.39 crores.6
3.7 International Life Insurance Scenario:
The beginning of insurance services may be traced back to14th century in
Italy when ship carrying good were covered under poles apart. The logical and
orderly beginning of insurance took place in UK at Lloyds Coffee house at
Tower street London. Although the Insurance Industry has grown rapidly in
insurance developed economics its growth in developing countries has neither
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been satisfactory nor in tandem with the growth of other sector of the
economy.The12 most industrialized countries in the world still account’s
extremely low and surprising fact is that the Indian Insurance Industry has been
lagging behind even amongst the developing countries of the world.7
As Insurance constitutes one of the major segments of financial segment of
financial market the nature and pattern controls in country are shaped by its
political and economic philosophy economic and social compulsions and
pressure from invested groups and past experience est. Based upon these factors
different countries have evolved their own regulatory mechanism being
applicable to insurance to promote free and healthy competition amongst them,
while other have encouraged self control system to greater role being assigned
to actuaries, auditors, professionals etc. Insurance services in UK grew as early
as in 16th century; the sector was practically without government control and
intervention till 1870 when Life Insurance Act was passed.8 The act did not
impose any restriction on the sector but simply made it Obligatory on the
companies engaged in insurance business to disclose their financial and other
the details to the people and get finance evaluated by an actuary. Some of the
important development in the insurance sector. After the post war period in UK
are mentioned as under
Excessive competition for business led to decline of premium rates.
Return on investment in stocks market promoted cash flow basis for
development of general insurance business.
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Formation of captives pools self-insurance scheme supported by global
reinsure promoted shift from conventional to non conventional insurance
system.
Concentration of business in limited number of mega size companies’
medium size and small companies could not withstand the practice of
competition and had to survive on limited volumes of business from their
market sources.
USA being the most developed and refined economy of the world
primarily depends upon the private players for insurance business with a
regulatory framework encouraging and insuring free competition among the
participants .Japan has one of the most developed insurance sector in the world.
The density is as high US dolor 3896 and penetration is 11.87 percent. The
entire business is regulated under Insurance Business low, 1995. For obtaining a
license to conduct insurance business, the minimum capital requirement is
Japanese Yen 3o Million. The notable feature of japans Insurance industry is
the consternation of Business with limited number of large size companies. The
accession of WTO Chinese Insurance market was opened to foreign insurer
relaxing regulations and operational limitations. Chinese market was partially
opened to foreign insurance companies in 1992. American International group
(AIG) was the first company to establish but under the strict regulation. China
life Insurance company (CLIC) was the market leader in the life insurance
segment with a market share of 45 percent. Due to the problem of increasing
market share of foreign players Chinese government was forced to nationalize
the insurance business, as result of this people Insurance company of China
established in 1949 PICC was formed by combining few domestic players and
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all foreign players were shown the exit door form Chinese insurance market.
The Insurance law of 1995 was the first real attempt for growing the insurance
industry.9
3.8 Nationalization of Life Insurance (1956):
Despite the mushroom growth of many insurance companies per capita
insurance in Indian was merely Rs.8.00 in 1944, besides some companies were
indulging in malpractices, and a number of companies went into liquidation.
Big industry houses were controlling the insurance and banking business
resulting in inters looking of funds between banks and insurance companies.
This shook the faith of insuring public in insurance companies as custodians of
their savings and security. The nation under the leadership of Pandit
Jawarberlal Nehru was moving towards socialistic pattern of society with the
main aim of spreading of life insurance to rural areas and to channelize huge
funds accumulated by life insurance companies to nation building activities.
The Government of India nationalized the life insurance industry in January
1956 by merging about 250 life insurance companies and forming Life
Insurance Corporation of India (LIC), which started functioning from
01.09.1956.10
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3.9 An Overview of Insurance Business in India:
Insurance business is divided into four classes:
a) Life Insurance
b) Fire
c) Marine
d) Miscellaneous Insurance.
Life insurers undertake the Life Insurance business; general insurers handle the
rest. The business of insurance essentially means defraying risks attached to an
activity (including life) and sharing the risks between various entities, both
persons and organizations. Insurance companies are important players in
financial markets as they collect and invest large amounts of premium in
various investment instruments. Insurance offers the following benefits:
Protection to investors
Accumulation of savings
Channeling these savings into sectors needing huge long-term
investments.
Insurance companies receive a steady cash stream of premium or contributions
to pension plans. Their cash flows are determined on the basis of various
actuary studies and models. Since their liabilities are long-term or contingent in
nature, their investments are also long-term and they are able to maintain a
healthy liquidity position.11 since they offer more than the return on savings in
the shape of life cover to the investors, the rate of return guaranteed on their
insurance policies is relatively low. Consequently, the need to seek high rates of
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return on their investments is also low. Since the risk factor in the insurance
business is quite high, insurance companies usually invest in relatively safer
bets such as bonds of GOI, PSUs, state governments, local bodies, corporate
houses and mortgages of long-term nature. Lately, insurance companies have
also ventured into pension schemes and mutual funds.
Life insurance constitutes the major share of insurance business. Life
insurance depends upon the laws of mortality. Life has to end sooner or later
and the claim in respect of life is certain. On the other hand, in case of general
insurance, there may never be any claim and the amount cannot be ascertained
in advance. Hence, life insurance, besides providing a cover for life of
individuals, also serves as a good source of savings for the beneficiaries.
The life insurance market in India presents several striking features, which
appear, for the most part, to be necessary concomitants of the underdeveloped
nature of the country’s economy. Existences of a large number of life insurance
sellers and the narrowness of the life insurance market have been the
characteristics peculiar to India. The volume of life insurance business annually
sold on the Indian life insurance market came on an average to about Rs 160
crore.12 Most of these policies were sold during the phase of private enterprise,
by Indian organizations termed insurers by the Indian Insurance Act.
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3.10 List of Life Insurers: (as of 2008)
Apart from Life Insurance Corporation, the public sector life insurer,
there are 22 other private sector life insurers, most of them joint ventures
between Indian groups and global insurance giants.13
Life Insurer in Public Sector:
1. Life Insurance Corporation of India
Life Insurers in Private Sector:
1. AEGON Religare Life Insurance
2. Aviva Life Insurance
3. Bajaj Allianz Life
4. Bharti AXA Life Insurance Co Ltd
5. Birla Sunlife
6. Canara Hsbc Oriental Bank Of Commerce Life Insurance
7. DLF Pramerica Life Insurance
8. Future Generali Life Insurance Co Ltd
9. HDFC Standard Life
10. ICICI Prudential Life Insurance
11. IDBI Fortis Life Insurance
12. India First Life insurance company limited
13. ING Vysya Life Insurance
14. Kotak Life Insurance
15. Max New York Life Insurance
16. Metlife India Life Insurance
17. Reliance Life Insurance Company Limited - Formerly known as AMP
Sanmar LIC
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18. Sahara Life Insurance
19. SBI Life Insurance
20. Shriram Life Insurance
21. Star Union Dia-ichi Life Insurance Co. Ltd
22. Tata AIG Life
These are few companies on the list. The total life insurance market can
be judged in terms of 2 parameters- premium collected and number of new
policies underwritten. It can be seen that market share of more than 70 per cent
is with LIC. Life insurance policy in India is growing rapidly ever since the
sector opened up for the private and foreign players. The industry is in the
throes of competitive market forces. Unlike several industries like
telecommunication and oil industry, insurance is not a high capital cost
industry. This industry is build up on a good will and on access of distribution
network.
3.11 Life Insurance Process Flow:
The simplest life insurance business cycle looks like this:
The client approaches the insurer through an agent with a proposal
containing his personal details, income details, medical history, products,
sum assured, term and premium amount. The agent who brings this
proposal is termed as a servicing agent for the proposal.
The proposal will go through various stages of approval and risk
evaluation by the Central Processing Centre of the Insurance Company.
Upon final approval, a legal agreement, termed as policy, between the
insurer and the client is prepared whereby the insurer covers the client for
the sum assured. The client is also entitled for some additional benefits, if
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any, depending on the features of the product taken in the policy. The base
agent gets a commission for the policy.
The client pays a premium at regular intervals. These subsequent
premiums are termed as renewal premiums. The base agent gets a
commission on the renewal premium also.
The client may come back with some alterations to the policy viz.
increase/decrease in sum assured, increase/decrease of the term of policy
etc. The insurer will make the relevant changes to the policy and will issue
endorsements stating the alterations made and their effect on the policy.
During the term of the policy, the client can submit claims. The insurer
makes payment against the claim after verification. Depending on the type
of claim the policy is either terminated or is kept in force.
At the end of the term of the policy, the client gets the sum assured as part of
the maturity benefit under life insurance policies. In addition to this the client
will get the maturity bonus and any other benefits depending on the product
feature.
3.12 Structure of LIC of India:
The central office life insurance corporation of India consists eight zonal
officer, viz. north zone Delhi, North Central Zone Kanpur, Central Zone
Bhopal, Western Zone Mumbai, Eastern Zone Kolkatta, East Central Zone
Patna, South Zone Chennai, South Central Zone Hyderabad. There are 23
Divisional Offices of Western Zone Mumbai. Marathwada region have two
division Aurangabad and Nanded division. Nanded, Jalna, Parbhani and Hingoli
these four districts are included in Nanded division of Life Insurance
Corporation of India.14
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Since life insurance contracts are long term contracts and during the
currency of the policy it requires a variety of services need was felt in the later
years to expand the operations and place a branch office at each district
headquarter. Re-organization of LIC took place and large numbers of new
branch offices were opened. As a result of re-organization servicing functions
were transferred to the branches, and branches were made accounting units. It
worked wonders with the performance of the corporation. It may be seen that
from about 200.00 crores of New Business in 1957 the corporation crossed
1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to
cross 2000.00 crore mark of new business. But with re-organization happening
in the early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum
Assured on new policies.15
Today LIC functions with 2048 fully computerized branch offices, 109
divisional offices, 8 zonal offices, 992 satellite offices and the corporate office.
LIC’s Wide Area Network covers 109 divisional offices and connects all the
branches through a Metro Area Network. LIC has tied up with some Banks and
Service providers to offer on-line premium collection facility in selected cities.
LIC’s ECS and ATM premium payment facility is an addition to customer
convenience. Apart from on-line Kiosks and IVRS, Info Centers have been
commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad,
Kolkata, New Delhi, Pune and many other cities. With a vision of providing
easy access to its policyholders, LIC has launched its SATELLITE SAMPARK
offices. The satellite offices are smaller, leaner and closer to the customer. The
digitalized records of the satellite offices will facilitate anywhere servicing and
many other conveniences in the future.16
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3.13 Insurance Industry in India:
The following are the highlights of insurance industries in India.
Reaching Out To Customers: No doubt, the customer profile in the
insurance industry is changing with the introduction of large number of
divergent intermediaries such as brokers, corporate agents, and banc
assurance. The industry now deals with customers who know what they
want and when, and are more demanding in terms of better service and
speedier responses. With the industry all set to move to a de-tariffed
regime by 2007, there will be considerable improvement in customer
service levels, product innovation and newer standards of underwriting.
Intense Competition: In a de-tariffed environment, competition will
manifest itself in prices, products, underwriting criteria, innovative sales
methods and creditworthiness. Insurance companies will vie with each
other to capture market share through better pricing and client
segmentation. The battle has so far been fought in the big urban cities,
but in the next few years, increased competition will drive insurers to
rural and semi-urban markets.
Global Standards: While the world is eyeing India for growth and
expansion, Indian companies are becoming increasingly world class.
Take the case of LIC, which has set its sight on becoming a major global
player following a Rs. 280-crore investment from the Indian government.
The year 2005 was a testing phase for the general insurance industry with
a series of catastrophes hitting the Indian sub-continent. However, with
robust reinsurance programmes in place, insurers have successfully
managed to tide over the crisis without any adverse impact on their
balance sheets. With life insurance premiums being just 2.5 per cent of
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GDP and general insurance premiums being 0.65 per cent of GDP, the
opportunities in the Indian market place is immense. The next five years
will be challenging but those that can build scale and market share will
survive and prosper.
3.14 Market Share of Indian Insurance Industry:
The introduction of private players in the industry has added value to the
industry. The initiatives taken by the private players are very competitive and
have given immense competition to the on time monopoly of the market LIC.
Since the advent of the private players in the market the industry has seen new
and innovative steps taken by the players in this sector. The new players have
improved the service quality of the insurance. As a result LIC down the years
have seen the declining phase in its career. The market share was distributed
among the private players. Though LIC still holds the 75 per cent of the
insurance sector but the upcoming natures of these private players are enough to
give more competition to LIC in the near future. LIC market share has
decreased from 95 per cent (2002-03) to 81 per cent (2004-05).17
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3.15 Growth Performance Indicators of Life Insurance Company in
India:
Table No.3.02:
Growth of Life Insurance New Business in India. (2000-01 to 2009-10).
Sr.NO. Year No. of policies
(In Lakhs)
% of Growth
1 2000-01 196.65 100
2 2001-02 222.99 113.39
3 2002-03 242.79 123.46
4 2003-04 269.68 137.14
5 2004-05 239.78 121.93
6 2005-06 315.91 160.65
7 2006-07 382.29 194.40
8 2007-08 376.13 191.27
9 2008-09 359.13 182.62
10 2009-10 388.00 197.30
Source: Annual Report of IRDA (2000-01 to 2009-10)
Note:-Base year amount Rs.196.65 =100%
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Graph No.3.01:
Growth of Life Insurance New Business in India (2000-01 to 2009-10).
Source: - Table no.3.2
The above Table No. 3.02 shows the growth of LIC during the year 2000-01 to
2009-10 in new business number of policies. Under the new business categories
the number of policies rose from 196.65 lakh in 2000-01 to 388 lakh in the year
2009-10. The highest growth performance shown in the year 2009-10 i.e.
197.30 per cent. During the year The LIC shows the growth by 197.30 per cent.
196.65222.99
242.79269.68
239.78
315.91
382.29 376.13359.13
388
0
50
100
150
200
250
300
350
400
450
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
No. of policies(In Lakhs)
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Table No. 3.03:
Total Premium Received By LIC. (Rs. In Crores)
Sr. No. Year Total Premium (Rs.) % of Growth
1 2000-01 34890.02 100
2 2001-02 49821.91 142.80
3 2002-03 54628.49 156.57
4 2003-04 63533.43 182.10
5 2004-05 75127.29 215.33
6 2005-06 90792.22 260.22
7 2006-07 127822.84 366.36
8 2007-08 149789.99 429.32
9 2008-09 157288.04 450.81
10 2009-10 185985.00 533.06
Source: Annual Report of IRDA(2000-01 To 2009-10)
Note:-Base year amount Rs.34890.02 crores =100%
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Graph No. 3.02:
Total Premium Received By LIC. (Rs. In Crores)
Source:- Table no.3.03
The above Table No. 3.03 shows the total premium received by LIC during the
year 2000-01 to 2009-10. The total premium received in the year 2000-01 rose
from 34,890.02 crores to 1,85,985 crores in the year 2009-10. The growth
performance shown during the study period was that of 533.06 per cent. During
the study period The LIC shows the growth by more than five times in
premium.
34890.02
49821.91 54628.4963533.43
75127.29
90792.22
127822.84
149789.99157288.04
185985.00
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
Total Premium Rs.
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Table No.3.04:
Growth of Premium of New Business of Life Insurance India
(2000-01 to 2009-10). (Rs. In Crores)
Year Premium (Rs.) % of Growth
2000-01 9,700.98 100
2001-02 19,558.77 201.62
2002-03 15,976.76 164.69
2003-04 17,347.62 178.82
2004-05 20,653.06 212.90
2005-06 28,515.87 293.95
2006-07 56,223.56 579.57
2007-08 59,182.20 610.06
2008-09 61,718.52 636.21
2009-10 67,135.31 692.05
Source: Annual Report of IRDA. (2000-01 to 2009-10)
Note:-Base year amount Rs.9,700.98 crores =100%
99
Graph No.3.03:
Growth of Premium of New Business of Life Insurance India (2000-01 to
2009-10).
Source:- Table no.3.04
Premium income is the second major source of income of life insurance
industry. Table No. 3.04 reveal that total premium earned by life insurance
industry during the year 2000-01 to 2009-10. Under the premium received by
new business categories the amount of premium rose from 9,700.98 crores in
2000-01 to 67,135.31 crores in the year 2009-10. The highest growth
performance showed in the year 2009-10t. During the year The LIC shows the
growth in premium by 692.05 per cent.
0.00
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
70,000.00
80,000.00
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
Premium (Rs. In Crores)
100
Table No 3.05:
Investment of Life Insurance Corporations. (Rs. In Crores)
Year LIC
(Rs.)
% of Growth
2000-01 1,93,283 100
2001-02 2,45,388 126.97
2002-03 2,58,201 133.59
2003-04 3,47,959 180.03
2004-05 4,18,289 216.41
2005-06 4,63,771 239.94
2006-07 5,59,201 289.32
2007-08 6,74,475 348.96
2008-09 7,62,892 394.70
2009-10 10,45,539 540.94
Source: IRDA annual financial reports. (2000-01 to 2009-10)
Note:-Base year amount Rs.193283 crores =100%
101
Graph No 3.04:
Investment of Life Insurance Corporations. (Rs. In Crores)
Source:- Table no.3.05
Table No. 3.05 shows that the investment of LIC during the year 2000-01 to
2009-10. The investment made by LIC in the year Rs. 1.93 Lakh Crores were
increased up to Rs. 10.45 Lakh Crores in the year 2009-10. The growth index
shows the number as 100 in 2000-01 increased up to 541 in the year 2009-10.
During the study period incensement in the investment of LIC shows more than
five times growth.
0
100
200
300
400
500
600
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
102
Table No 3.06:
Investment income (ROI) of LIC in India. (Rs. In Crores)
Year LIC
(Rs.)
% of Growth
2000-01 316 100
2001-02 821 259.81
2002-03 809 255.01
2003-04 29855 9447.78
2004-05 37066 11729.75
2005-06 40056 12675.95
2006-07 46784 14805.06
2007-08 56595 17909.81
2008-09 78804 24937.97
2009-10 1,12,425 35577.53
Source: IRDA Annual Financial Reports. (2000-01 To 2009-10)
Note:-Base year amount Rs.316 crores =100%
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Graph No 3.05:
Investment income (ROI) of LIC in India. (Rs. In Crores)
Source:- Table no.3.06
Table No. 3.06 shows the income of LIC from investments during the year
2000-01 to 2009-10. The LIC received income from investment in the year
2000-01 Rs. 316 crores was increased up to Rs. 1,12,425 crores in the year
2009-10. The growth index shows the income of LIC with equal to 100 points
in the year 2000-01 was increased up to 35,577 points in the year 2009-10.
0
5000
10000
15000
20000
25000
30000
35000
40000
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
104
Table No 3.07:
Operating Expenses of LIC. (Rs. In Crores)
Year LIC
(Rs.)
% of Growth
2000-01 3706.56 100
2001-02 4260.40 114.94
2002-03 4571.76 123.34
2003-04 5186.50 139.93
2004-05 6241.26 168.38
2005-06 6041.55 162.99
2006-07 7085.84 191.17
2007-08 8309.32 224.18
2008-09 9064.29 244.55
2009-10 12245.82 330.38
Source: IRDA Annual Financial Reports. (2000-01 to 2009-10)
Note:-Base year amount Rs.3706.56 crores =100%
105
Graph No 3.06:
Operating Expenses of LIC. (Rs. In Crores)
Source: - Table no.3.07
Table No. 3.07 shows the operating expenses of LIC during the year 2000-01 to
2009-10. The operating expenses of LIC increased from Rs. 3,706.56 Crore in
the year 2000-01 to Rs. 12,245.82 crores in the year 2009-10. The growth index
shows the operating expenses of LIC was rose from 100 points in the year
2000-01 to 330.38 points in the year 2009-10.
3706.564260.4 4571.76
5186.5
6241.26 6041.55
7085.84
8309.329064.29
12245.82
0
2000
4000
6000
8000
10000
12000
14000
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
106
Table No 3.08: Total Assets of LIC. (Rs. in Crore)
Year Total Assets
(Rs.)
% of Growth
2000-01 500 100
2001-02 588 117.60
2002-03 64058 12811.60
2003-04 70278 14055.60
2004-05 81634 16326.80
2005-06 97255 19451.00
2006-07 134831 26966.20
2007-08 193303 38660.60
2008-09 2,97,980 59596.00
2009-10 3,12,299 62459.80
Source: IRDA Annual Financial Reports. (2000-01 To 2009-10) Note:-Base
year amount Rs.500 crores =100%
Graph No 3.07: Total Assets of LIC. (Rs. in Crore)
Source:- Table no.3.08
0
10000
20000
30000
40000
50000
60000
70000
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
107
Total Assets of LIC during the year 2000-01 to 2009-10 are shown in Table
NO. 3.08. The total assets of LIC rose from Rs. 500 crores in the year 2000-01
to 3, 12,299 crores in the year 2009-10. The growth index number shows the
100 points in the year 2000-01 increased up to 62,460 in the year 2009-10 the
growth rate in assets is very high of LIC during the study period.
Table No. 3.09:
Profit/Loss of LIC. (Rs. In Crore)
Year LIC
(Rs.)
% Growth
2000-01 317 100
2001-02 822 259.31
2002-03 497 156.78
2003-04 552 174.13
2004-05 708 223.34
2005-06 632 199.37
2006-07 747 235.65
2007-08 845 266.56
2008-09 957 301.89
2009-10 1061 334.70
Source: LIC Annual Financial Reports. (2000-01 to 2009-10)
Note:-Base year amount Rs.317 crores =100%
108
Graph No. 3.08:
Profit/Loss of LIC. (Rs. In Crore)
Source:- Table no.3.09
Table No. 3.09 shows the growth in profit of LIC during the year 2000-01 to
2009-10. The profit earned by LIC in the 2000-01 was Rs. 317 (100) crores
were increased up to 1,061 Crore (334.70) crores in the year 2009-10. The
growth percentage shows more than three times growth i.e. 100 points to 335
points during the study period.
3.16 Growth Performance during the year 2009-10:
The insurance industry in India has changed rapidly in the challenging
economic environment throughout the world. In the current scenario, Indian
insurance companies have become competitive in nature and are providing
appropriate distribution channels to get the maximum benefit and serve
317
822
497552
708
632
747
845
957
1061
0
200
400
600
800
1000
1200
2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
109
customers in manifold ways. Indian Insurance industry has big opportunity to
expand, given the large population and untapped potential. The insurance
market in India has witnessed dynamic changes including entry of a number of
global insurers. Saturation of markets in many developed economies has made
the Indian market even more attractive for global insurance majors. The
Insurance Regulatory and Development Authority regulate and develop the
insurance sector in India through calibrated policy initiatives.
The life insurance industry witnessed a steady growth in 2009-10
financial year, with an 18 per cent increase in total premium received during the
year to Rs 2,61,025 crore over the previous fiscal. The industry had collected
premium worth Rs 2,21,791 crore in the previous fiscal.18 According to the
council's data, new business premium jumped 25 per cent to Rs 1,09,213 crore
in FY'10 from Rs 87,006 crore last year, while renewal premium of the industry
grew by 13 per cent to Rs 1,51,812 crore. Life insurance companies have been
adhering to rural and social sector obligation by covering more than 1.93 crore
lives in social sector in FY 2008-09. Life companies have also sold more than
2.8 crore policies in rural areas in FY'08 and FY'09. Besides, up to the 2009-10
fiscal, life insurance firms opened more than 11,927 branches, 70 per cent of
which are in semi-urban or rural areas. The total assets held by life Insurance
industry stood at about Rs 12,90,000 crore as on March 31, 2010. Considering
the above factors, life insurance industry has become one of the main
contributors towards the country's long-term infrastructure growth.
The life insurance sector of India has added up to 4.1 per cent of the GDP in
2009; a considerable growth was recorded since the time the sector was opened
110
for the private companies. The contribution in FDI by the life insurance
segment was recorded at US $ 1.3 billion, even though the government is likely
to increase the FDI cap limit from 26 per cent to 49 per cent. The year 2009-10
also saw private sector insurance company, Aviva Life Insurance establishing
nine unit-linked plans, in line with the recent IRDA guidelines featuring
enhanced and higher internal rate of return (IRRs). As per the data provided by
the IRDA, the businesses of the life insurance companies had a growth of 22
per cent at US$ 12 billion in April-November 2009-10, in comparison to the
US$ 9.8 billion during the same period last year. Such a huge sale of single
premium policies led the industry to record a raise of 53.25 per cent in
November 2009 alone.
With the registration of India First Life Insurance Company Limited, a
joint stake life insurance company encouraged by Bank of Baroda and Andhra
Bank of India and Legal & General Middle East Limited, UK, the total number
of life insurer’s registration with the Insurance Regulatory Development
Authority (IRDA) has increased to 23. According to industry body, Life
Insurance Council, The life insurance industry had earlier been anticipated to
grow by 15 per cent in the year 2009 - 10 and surpass the US$ 54.1 billion mark
in total premium income by March-end. This growth in premium income
includes new business as well as renewals, driven by increasing awareness on
the value of getting insured. The US$ 41-billion Indian insurance industry made
a grand return with better performances in the April-November 2009 period.
Life insurance in India recorded the first year premium (inclusive of Single
Premium) segment accounting to US$ 24 billion.19
111
Table No. 3.10:
Performance of LIC in 2009-10:
Particulars Crores Rs. Growth %
New Policies 3.88 8.21
First Premium Rs. 42,960 21.63
Total Premium Income Rs. 1,85,985 18.32
Total Income 2,98,721 49.15
Total Assets 11,52,057 31.88
Death Claims 7,033.68
Maturity / Survival Benefit claims 46,921.22
Valuation Surplus (Profit) 23,478
Dividend to Government 1,029
Source –IRDA Annual Financial Reports. (20010-11)
Performance of LIC in the year 2009-10 shows in details in Table No. 3.10. The
table shows that the growth rate in new policy is recorded by 8.21 per cent,
growth in first premium by 21.63 per cent, Total premium growth rate is 18.32
per cent, total income increased by 49.15 per cent and the growth recorded in
total assets is 31.88 per cent with compared to 2008-09.
112
Table No. 3.11:
Market Share of Indian Insurance Companies in the year 2009-10. (%)
Name of the Player Market share (%)
Life Insurance Corporation Of India 82.30
ICICI Prudential 5.63
Birla Sun Life 2.56
Bajaj Allianz 2.03
SBI Life Insurance 1.80
HDFC Standard 1.36
Tata Aig 1.29
Max NewYork 0.90
Aviva 0.79
Om Kotak Mahindra 0.51
Ing Vysya 0.37
Met Life 0.21
Source –IRDA Annual Financial Reports. ( 2009-10)
113
The Table No. 3.11shows the market share of various insurance
companies including LIC. It very interesting to know the above table that year
LIC keep with 82.3 per cent market share while other companies very less
performance in total market share. The table concludes that yet LIC is a
dominant player in insurance business in India.
Graph No. 3.09:
Market Share of Indian Insurance Companies in the year 2009-10.
Source:- Table no.3.11
India with about 200 million middle class household shows a huge untapped
potential for players in the insurance industry.20 Saturation of markets in many
developed economies has made the Indian market even more attractive for
global insurance majors. The insurance sector in India has come to a position of
very high potential and competitiveness in the market. Indians, have always
seen life insurance as a tax saving device, are now suddenly turning to the
private sector that are providing them new products and variety for their choice.
Market share (%)
Life Insurance Corporation Of
India
ICICI Prudential
Birla Sun Life
Bajaj Allianz
SBI Life Insurance
HDFC Standard
114
Table No. 3.12:
Comparative Growth of Life Insurance Business (Year 2009-10):
Sr.No.
Insurance Company 2008-09 2009-10
Growth over
the year
01 LIC 1247.89 2113.11 69.33
02 SBI Life 171.91 460.26 167.73
03 Bajaj Allianz 187.77 163.2 -13.08
04 Max New York Life 119.17 145.19 21.83
05 ICICI Prudential 344.79 135.82 -60.61
06 Relinace Life 157.92 110.78 -29.85
07 HDFC Standard Life 120.39 98.95 -17.8
08 Birla Sun Life 91.95 82.92 -9.82
09 ING Vyasa 30.19 37.76 25.07
10 Aviva Life 41.73 32.57 -21.95
11 Private total 1532.22 1488.48 -2.85
Total 2780.11 3601.58 29.54
Source –IRDA Annual Financial Reports. (2008-09 to2009-10)
The given above table No.3.12 of LIC, which recorded 69.33 per cent
growth in first-year premium during 2009-10, a bulk of the growth came from
the group single premium segment, where the first premium income rose over
six times to Rs 929.62 crore, as against Rs 151.13 crore in the corresponding
period last year. Similarly, individual single premium rose to Rs 426.90 crore
from Rs 366 crore in the corresponding period of last year. As a result of the
115
increase in premium collection, LIC’s market share increased to 58.67 per cent.
The insurance major had been losing markets share in the last few years.
LIC’s new business premium had declined by 10 per cent in the last
financial year while the private players’ grew their business by 1.03 per cent.
Even in case of SBI Life, the second-largest life insurance company, the trend
was similar.21 Since the growth is coming from the group business, especially
the single-premium segment, it may be difficult to sustain it. Business Standard
that the public sector player intended to focus on traditional policies to improve
sales during the current financial year. For private players, first-year collections
fell by 2.85 per cent in April. ICICI Prudential slipped from the second position
to fifth in the April collection, with SBI Life taking over as the largest private
sector life insurer. Of late, insurers have been focusing on profitability. They
are consolidating their business by bringing down their expansion plans. For
instance, Reliance Life has reported 30 per cent dip in its first-year premium as
against 28 per cent growth in 2008-09. It put on hold expansion after getting
regulatory approval for opening 400 branches. Similarly, ICICI Prudential is
looking at consolidation. The company posted Rs 577 crore net loss in 2008-09.
3.17 FDI Policy in Indian Life Insurance Industry:
The LIC is still the major company in the life insurance sector but with
such an emergence of the private companies, providing a range of
moneymaking policies and investment chances for people from all walks of life
the situation is fast changing.22 The Unit Linked Investment Plans (ULIP)
offering life cover as well as scope for savings and investment deserves extra
acknowledgement in this issue. Furthermore, with minimum lock-in period of
116
three years such plans are subjected to avoid miss usage of important tax
benefits.
3.18 Investment Policy of LIC of India:
According to section 19 (2) of the LIC Act, 1956, the LIC constituted an
investment committee for the purpose of advising it in matters relating to the
investment of its funds. The Corporation, in accordance with powers vested in it
by section 49 of the LIC Act, frames regulations, which were published in the
Official Gazette after the approval of the Central Government. The constitution
of the Investment Committee is dealt with in regulation 22, while regulation 24
stipulates that the Investment Committee will advise the Corporation on matters
referred to it relating to the investment of its funds. According to rules approved
regarding investment of funds, the executive director of Investments, under
instructions from the chairman, was empowered to invest funds of the LIC up to
a maximum of Rs 50 lakh in respect of Government and approved securities
and Rs five lakh in the case of debentures and ordinary or preference shares.
Further, no single scrip was to be more than Rs 2.5 lakh in the case of
debentures and Rs one lakh in the case of ordinary and preference shares. It was
also authorized to make investments in foreign countries to the extent of Rs 25
lakh.23 under this, the Corporation had to invest 25 percent of the controlled
fund in Government securities, a further sum equal to not less than 25 percent in
Government securities or other approved securities and not more than 15
percent in other investments. This amounts to around 35 percent of the
controlled fund being held in approved investments, and defined in section 27-
A of the Act.
117
In 1974, the investment policy of the LIC was revised, as recommended
by an informal group headed by the Governor of the Reserve Bank of India.
According to the revised policy, the LIC had to invest not less than 75 percent
of the controlled fund in Central Government marketable securities, Central and
State Government securities and in socially oriented projects, including house
building by policyholders. Of this 75 percent, not less than 50 percent could be
invested in Central and State Government securities and Government
guaranteed.24
People’s Money for People’s Welfare:
The Life Insurance Corporation of India has been a nation builder since
its formation in 1956. True to the objective of nationalization, the LIC has
mobilized the funds invested by the people in the life insurance for the benefit
of the community at large. The Corporation has deployed the funds to the best
advantage of the policy holders as well as the community as a whole, true to the
spirit of nationalization. Nation priorities and obligation of reasonable returns to
the policyholders are the main criteria of our investments.
118
Table No. 3.13:
Investments of LIC in Governments and Social Sectors. (In crore)
Year
Central
Govt.
Securities
State Govt.
Securities Infrastructure & Development.
Housing Power
Irrigation
& Water
Supply
Road,
Railways
etc. Others
2000-01 85181 17877 17998 12402 3657 325 NA
2001-02 109938 21463 19054 13447 4000 681 NA
2002-03 137276 28988 19944 14508 4420 781 NA
2003-04 166939 37402 20694 14805 7111 1272 NA
2004-05 199785 51303 16570 22439 8807 2463 4272
2005-06 236959 58928 19807 29740 8288 2477 3954
2006-07 272498 64285 22451 37881 7500 1516 4398
2007-08 297943 89234 24325 41120 6649 1154 8774
2008-09 318673 110697 34185 48090 6022 7218 5274
2009-10 360319 141292 40232 77585 5241 8066 17073
Source:-LIC Annual Report (2000-01 to 2010-11)
119
Graph no.3.10
Investments of LIC in Governments and Social Sectors.(In crore)
Source:-Table no.3.13
Graph no.3.11
Investments of LIC in Governments and Social Sectors.(In crore)
Source:-Table no.3.13
0
50000
100000
150000
200000
250000
300000
350000
400000
Central Govt. Securities State Govt. Securities
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
2004 05 2005 06 2006 07 2007 08 2008 09 2009 10
Infrastructure & Development.
Housing 17998 19054 19944
20694
Infrastructure & Development.
Power 12402 13447 14508
14805
Infrastructure & Development.
Irrigation & Water Supply
3657 4000 4420 7111
Infrastructure & Development.
Road, Railways etc. 325 681
781 1272
120
The above table no.3.13 shows that the LIC Investments in year 2000-01 is Rs.
85181 crores while in 2009-10 is Rs.360319 in Central Govt. Securities, 2000-
01 Rs.17877 crore while in 2009-10 is Rs.141292 in crores in State Govt.
Securities ,LIC also invested in Infrastructure & Development sector like as in
Housing they invested Rs.17998 crores in year 2000-01 & in the year 2009-10
Rs.40232 crores, Power they invested Rs.12402 crores in year 2000-01 & in the
year 2009-10 Rs.77585 crores , Irrigation & Water Supply they invested
Rs.3657 crores in year 2000-01 & in the year 2009-10 Rs.5241 crores, Road
Railways etc. they invested Rs.325 crores in year 2000-01 & in the year 2009-
10 Rs.8066 crores, & but in Others sector they are not interested to invest
initial ,in the year of 2004-05 they invested RS.4272 crores & in the year 2009-
10 Rs. 17073 crores. The above investment of the LIC is purely based on
Indians growth.
121
Table No. 3.14:
Claims Report of Various Insurance Companies.
Name of
Insurance
Companies
2009-10 2010-11
Claims Claims Claims Claims Claims Claims
repudiated settled pending repudiated settled pending
LIC 1.21 96.53 1.41 1.09 97.5 1.47
ICICI
Prudential 3.27 90.17 6.56 2.8 94.4 2.6
HDFC Life 4.67 91.14 4.2 3.97 96.03 0.61
Aviva Life 9.75 87.11 3.14 4.1 87.11 3.14
Birla Sun Life 10.62 89.09 5.82 4.99 94.66 0.35
India First Life 7.69 53.85 38.46 9.4 90.58 0.03
Max New York
Life 12.31 65.51 7.14 14.85 78.01 7.14
SBI Life 14.75 83.27 1.96 16.74 82.24 1.03
IDBI Federal
Life 23.81 49.52 26.67 21 65 14
Source: http://www.business-standard.com
3.19 Claims Report:
A repudiation ratio is a measure of claims rejected. During 2010-11, LIC
improved its repudiation ratio for death claims to 1.09 per cent from 1.21 per
cent in the previous year. In the same period, the public sector insurance
behemoth settled 97.5 per cent of death claims, whereas claims pending stood at
122
1.47 per cent. Overall, LIC have settled 99.6 per cent of the total claims in the
last financial year. And 95 per cent of the death claims were settled within 15
days of intimation. In total, during the 2010-11, LIC has settled around 18.3
million claims amounting to Rs 53,000 crore, which includes survival benefits,
maturity and death claims. Of this, Rs 6,000 crore accounted for 721,000 death
claims. Among the private players, ICICI Prudential Life was the best
performer in terms of claims repudiation ratio, whereas HDFC Life’s claims
settlement ratio was the highest, respectively. ICICI Prudential’s claims
repudiation ratio stood at 2.8 per cent, whereas for HDFC Life it was at 3.97 per
cent. During the same time, HDFC Life settled 96.03 per cent of the total death
claims, while ICICI Prudential settled 94.4 per cent of claims. Claims pending
for HDFC Life and ICICI Prudential stood at 0.61 per cent and 2.6 per cent,
respectively. Among the established players, the repudiation ratio for SBI Life
and Max New York Life worsened to 16.74 and 14.85, respectively. For the
smaller or relatively new private life insurance players, the ratio still remains on
the higher side. For instance, India First Life, which began operation in 2009,
had a repudiation ratio at 9.4 per cent, whereas for IDBI Federal Life which
started in 2007, it was 21 per cent.25
The repudiation ratio improves over a period of time as in a death within
two years (early death claims) of the issue of the policy requires investigation.
So, for the newer companies the proportion of early death claims always
remains high. Hence, the ratio is becomes skewed. Settlement of any insurance
claim involves interpretation of a lot of technical conditions generally used by
insurers to reject the claims. However, non-early death claims (claims after two
years of the issue of the policy) do not mandate any investigation. Hence, the
settlement procedure is faster and easier.
123
Table No. 3.15:
Claim Settlement operations of LIC:
Sr.
No.
Year Claim Settlement
(Number in lack)
Claim Settlement
Amount(Rs.in crores)
1 2000-01 75.86 11638
2 2001-02 87.67 14519
3 2002-03 96.91 17036
4 2003-04 103.91 19607
5 2004-05 114.91 23561
6 2005-06 120.84 28473
7 2006-07 135.31 36486
8 2007-08 138.68 37189
9 2008-09 149.00 37893
10 2009-10 216.00 53536
Source:-LIC Annual Report 2000-01To2010-11
The Table no.3.15 shows that the claim settlement by LIC in the 2000-01 was
Numbers in 75.86Lakhs were increased to Numbers 216 in Lakhs in the year
2009-10. & claim settlement by LIC in the year 2000-01 was Rs.11638 crores
were increased to Rs.53536 crores.
124
Contribution of LIC in Five Years Plan:
True to the spirit of nationalization, the Life Insurance Corporation has
deployed its funds to the best advantage of LIC policyholders as well as for the
community as a whole. National priorities and the obligation of reasonable
returns to the policy holders are the main criteria of LIC's investments. The
following table shows the contribution of LIC during the Five Year Plan period.
Table No. 3.16:
Contribution of LIC in Five Years Plan. (Rs. In crores)
Sr. Plan Plan Years Rs.
1 II Five Year Plan 1956-61 184
2 III Five Year Plan 1961-66 285
3 IV Five Year Plan 1969-74 1530
4 V Five Year Plan 1974-79 2942
5 VI Five Year Plan 1980-85 7140
6 VII Five Year Plan 1985-90 12969
7 VIII Five Year Plan 1992-97 56097
8 IX Five Year Plan 1997-02 170929
9 X Five Year Plan 2002-07 394779
10 XI Five Year Plan 2007-11 528390
Source:-LIC Annual Report 2000-01To2010-11
125
The Table No. 3.16 shows that the contribution of LIC in the five year plan.
The table shows that in the first five year plan LIC was contributes Rs. 184
crores increased up to Rs. 5,28,390 crores in the XI the plan of Government of
India.
3.20 Areas of Future Growth:
Life Insurance: The traditional life insurance business for the LIC has
been a little more than a savings policy. Term life (where the insurance
company pays a predetermined amount if the policyholder dies within a
given time but it pays nothing if the policyholder does not die) has
accounted for less than 2 per cent of the insurance premium of the LIC.
For the new life insurance companies, term life policies would be the
main line of business.
Health Insurance: Health insurance expenditure in India is roughly 6 per
cent of GDP, much higher than most other countries with the same level
of economic development. Of that, 4.7 per cent is private and the rest is
public. What is even more striking is that 4.5 per cent are out of pocket
expenditure. There has been an almost total failure of the public health
care system in India. This creates an opportunity for the new insurance
companies. Thus, private insurance companies will be able to sell health
insurance to a vast number of families who would like to have health care
cover but do not have it.
126
Pension: The pension system in India is in its infancy. There are
generally three forms of plans: provident funds, gratuities and pension
funds. Most of the pension schemes are confined to government
employees. The vast majority of workers are in the informal sector. As a
result, most workers do not have any retirement benefits to fall back on
after retirement. Total assets of all the pension plans in India amount to
less than USD 40 billion. Therefore, there is a huge scope for the
development of pension funds in India. The finance minister of India has
repeatedly asserted that a Latin American style reform of the privatized
pension system in India would be welcome. Given all the pros and cons,
it is not clear whether such a wholesale privatization would really benefit
India or not.
3.21 Review of the Committee on Reforms in the Insurance Sector:
The Government set up a committee under the chairmanship of R N
Malhotra to propose recommendations for reforms in the insurance sector. The
progress of the nationalized life insurance business had to be judged by the rate
of its progress towards the realization of the goals it set for itself. In 1974, the
Administrative Reforms Commission of the Government put forward certain
recommendations in pursuance of which the LIC formulated its objectives:26
To spread life insurance much more widely and in particular to the rural
areas, and to the socially and economically backward classes with a view
to reaching all insurable persons in the country and providing them, at a
reasonable cost, adequate financial cover against death.
127
To maximize mobilization of people’s savings by making insurance
linked savings adequately attractive.
To bear in mind, in the investment of funds, the primary obligation is to
its policyholders, whose money it holds in trust, without losing sight of
the interest of the community as a whole; the funds to be deployed to the
best advantage of the investors as well as the community as a whole,
keeping in view national priorities and obligations of attractive return.
To conduct business with utmost economy and with the full realization
that the moneys belong to the policyholders.
To act as trustees of the insured public in their individual and collective
capacities.
To meet the various life insurance needs of the community that would
arise in the changing social and economic environment.
To involve all people working in the Corporation to the best of their
capability in furthering the interest of the insured public by providing
efficient service with courtesy.
To promote amongst all agents and employees of the Corporation a sense
of participation, pride and job satisfaction through discharge of their
duties with dedication towards achievement of corporate objectives.
Keeping in view these objectives, the committee stated that LIC had achieved
several of the objectives of nationalization; but at the same time, it pointed out
several negative constraints. Following the recommendations of the Malhotra
Committee Report, in 1999, the Insurance Regulatory and Development
Authority (IRDA) was constituted as an autonomous body to regulate and
develop the insurance industry. The key objectives of IRDA were to promote
128
competition so as to enhance customer satisfaction through increased consumer
choice and lower premiums, while ensuring the financial security of the
insurance market. The IRDA opened the market in August 2000 with the
invitation for application for registrations. Foreign companies were allowed
ownership of up to 26 per cent.27 Companies were required to submit business
plans detailing the proposed capital structure, the nature of business they
planned to carry out and their plans for selling insurance to the rural and social
sectors. Even prior to the IRDA Act, a number of multinational insurance
companies had begun exploring the possibility of setting up operation in India
in anticipation of the deregulation of the industry. The first step was generally
finding a local partner and working towards signing a Memorandum of
Understanding. Certain Indian companies were also keen to enter the insurance
market and were themselves seeking international partners. At present, there are
13 companies in the life insurance business and another 13 in the general
insurance business operating in the country.
3.22 Insurance Regulatory Development Authority (IRDA)
In spite of phenomenal progress of LIC of India, especially in the 80s, the
government and public at large were not quite satisfied with it. By signing
GATT accord, the government of India committed to opening of insurance
sector to private sector – to local and global operators. A committee under the
chairmanship of late R. N. Malhotra was appointed by the government to look
into all the aspects of insurance industry in India.28 The committee too, opined
that in its about 40 years of existence, LIC had been able to insure only 22
percentage of the insurable population. A moot reason may be the lack of
competition. Further, the monopoly has resulted in lack of sensitivity to the
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policy holders. There is a greater scope for product innovation and service
improvement. The committee recommended a number of measures to revamp
LIC of India, GIC of India and its four subsidiaries. It also recommended
allowing outside insurance companies to operate in India with an Indian
partner. After a great deal of discussion, finally the Lok Sabha has enacted the
Insurance Regulatory and Development Authority Act, 1999. In terms of the
act, the Insurance Regulatory and Development Authority is being set-up to
regulate and develop the insurance industry by opening it up to the private
sector. Foreign insurance companies can enter into the insurance sector in India
only with an Indian partner, as a joint-venture, with a capital contribution up to
a maximum of 26 percentage of the capital in the joint-venture.
3.23 Impact of LPG on LIC:
Insurance is an integral part of national economy and a strong pillar of
financial market.29 Therefore, waves of globalization have also deeply
influenced the insurance market worldwide. Financial Market Globalization has
also been strongly supported by Globalization of Insurance. With the increase
in Trade, Direct Investment and Portfolio Investment, there has been an ever
growing demand for Insurance services particularly in the emerging markets.
Globalization of Insurance market, as a part of the overall process of
liberalization in emerging and other countries enabled the foreign insurance
companies to enter in those countries and benefited both. There are several
benefits to the countries allowing foreign insurance companies to operate in
their countries which can be broadly classified into Economy related, and
Insurance marked related.
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The Indian life insurance industry has its own origin and history, since its
inception. It has passed through many obstacles, hindrances to attain the present
status. The income earning capacity of an individual citizen of a nation and the
eagerness and awareness of the general public are the two key determinants of
the growth of any insurance industry. For that they should provide wider and
mass-employment opportunities and sound educational system. Moreover, the
general public must be inculcated with more knowledge, awareness and
importance about life insurance, and these steps help to boost the growth of
insurance industries. In this Indian context, the insurance habit among the
general public during the independence decade was quite rare and in the
following decades, it slowly got increased. There was a remarkable
improvement in the Indian insurance industry soon after the acceptance and
adaptation of Liberalization, Privatization, and Globalization (LPG) in the year
1991.30 After 1991 the Indian life insurance industry has geared up in all
respects, as well as it is being forced to face a lot of healthy competition from
many national as well as international private insurance players. The fall in the
savings rate and increased competition in the primary market and particularly
the aggressive mobilization by the Mutual Fund posed serious challenges before
LIC.
The initiative taken by the Government to open up the insurance sector in
1999 was backed by the setting up of IRDA to regulate the insurance business.
The Government, at the time of nationalization, could have done the same.
Instead of barring private initiative completely, it could have set up a regulatory
body to monitor the insurance business. This would have taken care of the
problem of speculative investments by the private companies.31 Hence, in the
light of the above, a partial nationalization of the sector would probably have
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been a better option, with the private companies existing side by side thus
keeping the element of competition alive. It would have also served the
objective of the Government of reaching out to the masses of all strata and
income groups.
3.24 Progress of LIC in the Post LPG Era:
In the post LPG period, the Life Insurance Industry of India witnessed a
marvelous growth and touched its historical height. So many factors have
collectively contributed for this remarkable achievement. In this tenure, the LIC
of India introduced many phenomenal business strategies by way of offering
colorful schemes and products.32 The reason for these kinds of extraordinary
effect was only because of the stiff competition emerging by the private
insurance players. The private insurance companies are offering plenty of new
attractive schemes and products to get meaningful share in the insurance
market. However, the LIC of India has the powerful network and it is launching
attractive advertisements in the regular interval to create great awareness among
the general public. Simultaneously, the private life insurance companies are
also taking much pain to cover-up the major populations (inventors) under their
boundary, for that they are sponsoring series of effective awareness
Programmes through many attractive advertisements. This healthy competition
motivated the general public to go in favour of more investments in insurance.
While comparing the efficiency and progressiveness of life insurance business
in pre and post LPG arena, the Indian Life Insurance Industries are achieving a
magnificent growth.
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3.25 Impact of Information Technology on Life Insurance Sector:
There is an evolutionary change in the technology that has revolutionized
the entire insurance sector. Insurance industry is a data-rich industry, and thus,
there is a need to use the data for trend analysis and personalization. With
increased competition among insurers, service has become a key issue.
Moreover, customers are getting increasingly sophisticated and tech-savvy.
People today don’t want to accept the current value propositions, they want
personalized interactions and they look for more and more features and add
ones and better service.
The insurance companies today must meet the need of the hour for more
and more personalized approach for handling the customer.33 Today managing
the customer intelligently is very critical for the insurer especially in the very
competitive environment. Companies need to apply different set of rules and
treatment strategies to different customer segments. However, to personalize
interactions, insurers are required to capture customer information in an
integrated system. With the explosion of Website and greater access to direct
product or policy information, there is a need to developing better techniques to
give customers a truly personalized experience. Personalization helps
organizations to reach their customers with more impact and to generate new
revenue through cross selling and up selling activities. To ensure that the
customers are receiving personalized information, many organizations are
incorporating knowledge database-repositories of content that typically include
a search engine and let the customers locate the all document and information
related to their queries of request for services. Customers can hereby use the
133
knowledge database to manage their products or the company information and
invoices, claim records, and histories of the service inquiry. These products also
may be able to learn from the customer’s previous knowledge database and to
use their information when determining the relevance to the customers search
request.
The introduction of new economic policy and consequent financial sector
reforms has brought number of changes in Insurance sector. This sector hitherto
owned by the life insurance corporation of India and other General Insurance
Companies of the Government of India have been opened to private partners.
The formation of IRDA partnership with insurance business and banking
business and the introduction of micro insurance have given new thrust to this
sector. All these trends have increased the competition both in life and non life
insurance business which resulted in more choice for consumers. These trends
need in depth analysis and documentation for policy formulation and future
direction. The book has the following objectives To create out the historical
development of insurance sector. To analyze the trends in insurance sector
before and after the privatization. To analyze the business performance of
insurance companies in public private and cooperative sectors. To analyze the
trends in banc-assurance. It is hoped that this edited book will fulfill the
requirements of students and executives in insurance education.34
134
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