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A COMPARATIVE A ALYSIS OF LIFE I SURA CE CORPORATIO A D PRIVATE I SURA CE COMPA IES
Report submitted in partial fulfillment of the requirements for Masters in Business Administration
SUBMITTED BY: DIVYA PRIYA MBA-D 1020343
U DER THE GUIDA CE OF: PROF. UMA SHARMA MBA, CUIM
CO TE TS
Topic Preface Introduction (Concepts) Research Methodology Analysis and Interpretation Findings and Conclusions References
3 4-6 7-8 9-28 29-31 32
2 | Comparative analysis of LIC and private insurance companies
This report presents the research, findings and conclusions resulting from the project, “ COMPARATIVE A ALYSIS OF LIC A D PRIVATE I SURA CE COMPA IES”, supported by Prof.Uma Sharma, CUIM.
The objective was to compile and synthesize information on the concepts and process of the Insurance Sector, status of insurance industry in India, current performance, and comparison between public and private insurance company procedures.
3 | Comparative analysis of LIC and private insurance companies
Insurer. wife and children. Risk management. in exchange for a premium. has evolved as a discrete field of study and practice. Every asset is expected to last for a certain period of time during which it will perform. in law and economics. the asset may get lost earlier. Too many people in this country are not in employment. it provides comfort and convenience in transportation. He has to provide legally for his family needs. Insurance. the prospect of continual change in the work place with its attendant threats of unemployment and low pay especially after the adoption of New Economic Policy and the imminent life cycle risks . This is to make the right to life meaningful. Life insurance coverage is against disablement or in the event of death of the insured. it goes without saying that an appropriate life insurance policy within the paying capacity and means of the insured to pay premium is one of the social security measures envisaged under the Indian Constitution. probably he is correct. the practice of appraising and controlling risk. None of them will last for ever. Insurance is a mechanism that helps to reduce the effect of such adverse situations. he makes sure that the value or income is not lost. This fundamental need for security for self and dependents proved to be the mother of invention of the institution of life insurance. In modern days Insurance Companies want him to pay for protection and security. is a form of risk management primarily used to hedge against the risk of a contingent loss. Thus. is the company that sells the insurance. Man has been accustomed to pray God for protection and security from time immemorial. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time. Therefore. Risk has become central to one's life. the benefit may not be available. protection of the family. in economics. Man finds his security in income (money) which enables him to buy food. Insurance is defined as the equitable transfer of the risk of a potential loss. There is a life-time for a machine in a factory or a cow or a motor car. The benefit may be an income or some thing else. The insurance man says "God helps those who help themselves". the owner and those deriving benefits from there. shelter and other necessities of life. Hence. The asset is valuable to the owner. called the premium.a new source of insecurity which includes the changing demands of family life. right to social security. would be deprived of the benefit and the planned substitute would not have been ready. to be charged for a certain amount of insurance coverage. The asset would have been created through the efforts of the owner. always requires the utmost resourcefulness and foresight on the part of man. It is a measure of social security to livelihood for the insured or dependents. clothing. Insurance rate is a factor used to determine the amount. In that case. An accident or some other unfortunate event may destroy it or make it nonfunctional. It is a benefit because it meets some of his needs. worth living and right to livelihood a means for sustenance.CHAPTER 1 INTRODUCTION CONCEPT OF INSURANCE : Life has always been an uncertain thing. viz. A person has to earn income not only for himself but also for his dependents. self employed and low-earning workers living under pitiable circumstances where there is no security cover against risk. economic support for the dependents. WHAT IS INSURANCE : The business of insurance is related to the protection of the economic values of assets. 4 | Comparative analysis of LIC and private insurance companies . the product generated by is sold and income generated. After that. However. Every asset has a value. a substitute is made available. To be secure against unpleasant possibilities.. from one entity to another. To pray or to pay for protection is the spirit of the humanity. because he expects to get some benefit from it. and so he has to keep aside something regularly for a rainy day and for his old age. Several millions are part-time. In the case of a motor car. economic empowerment to the poor and disadvantaged are integral part of the right to life and dignity of the person guaranteed in the constitution. In the case of a factory or a cow. There is no direct income. It is within this background life insurance policy has been introduced by the insurance companies covering risks at various levels. separation. Further the inherent changing employment risks. divorce and elderly dependents are tormenting the society. and work for too many no longer guarantees income security. There is an adverse or unpleasant situation.
a body corporate shall consist of not more than 15 members appointed by the Central Government. the complex task of running the industry on a permanent basis and continuing the services to policy holders without interruption were their major concerns. the committee submitted the report and some of the key recommendations included: (1) STRUCTURE . one of them being appointed by the government as chairman. INSURANCE SECTOR REFORMS In 1993. The custodians were experienced senior executives of private insurance companies. · Controller of Insurance (Currently a part from the Finance Ministry)should be made independent (4) I VESME TS · Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. Malhotra was formed to evaluate the Indian Insurance industry and recommended its future direction. From the word go..All the insurance companies should be given greater freedom to operate (2) COMPETETIO · Private Companies with minimum paid up capital of Rs. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the over all financial system where it was necessary to address the need for similar reforms. when Life Insurance Corporation was established under the general direction and control of the Ministry of Finance.Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. The Ordinance provided for the transfer of the control of 154 Indian insurers. The custodians managed the insurance companies till 1-09-1956. · No Company should deal in both Life and General Insurance through a single entry.N.". (5) CUSTOMER SERVICE 5 | Comparative analysis of LIC and private insurance companies .Government stake in the Insurance Companies to be brought down to 50%. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. · GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time). · Only one State Level Life Insurance Company should be allowed to operate in each state. reporting directly to the Finance Ministry. · Foreign Companies may be allowed to enter the industry in collaboration with the domestic companies. (3) REGULATORY BODY · The Insurance Act should be changed · An Insurance Regulatory Body should be set up. Malhotra Committee.. The capital of the corporation was at Rs 5 crore provided by the central government. The corporation. . headed by former Finance Secretary and RBI Governor R. . policy conditions and service and working procedures and above all to help promote team spirit. · Postal Life Insurance should be allowed to operate in the rural market.THE LIFE INSURANCE CORPORATION OF INDIA: 1956 This was the first step taken towards the nationalization of life insurance business in India. The actual work of integration had to await legislation. In 1994. On 20th January. 16 non Indian insurers and 75 provident societies. These arrangements were designed to ensure that no inconvenience whatsoever was caused to the policy holders. With the Government take over the management aimed towards the evolution of a common uniform premium rate.1 bn should be allowed to enter the industry. 1956 all life insurance companies were taken over by 43 nominated custodians.
If the coin is tossed 1 million times. There is. For this purpose. which means. Investments in the corporate sector (shares. of which more than Rs. a law of large numbers . Underwriting includes assessing the risk. insurance business is classified primarily as life and non-life or general. People who suffer loss get relief because their loss is made good. So also.2002. making an evaluation of how much is the exposure to risk. These savings are channeled into investments for economic growth. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. which are related to human beings.· LIC should pay interest on delays on payments beyond 30 days. These directly affect the lives of the people and their economic well-being. Fire (dealing with all fire related risks). It spreads losses of an individual over the group of individuals who are exposed to similar risks. It has to ensure that nobody is allowed to take undue advantage of the arrangement. People who do not suffer loss are relieved because they were spared the loss. etc. General insurance has three classifications viz. the better the chances that the assumptions regarding the probability of the risk occurring. investments are necessary. 20000 crores in housing loans and Rs. the number of heads will be closer to half a million proportionately than in the case of 10.). but with some further refinements. The business of insurance is to (a) bring together persons with common insurance interests (sharing the same risks). the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. In order to be amenable to statistical predictions. Other investments included road transport. The business of insurance is nothing but one of sharing. 245000 crores. personal accident. ROLE OF INSURANCE IN ECONOMIC DEVELOPMENT : For economic development. 6 | Comparative analysis of LIC and private insurance companies . nearly Rs. for and on behalf of the community of policyholders. THE BUSINESS OF INSURANCE : Insurance companies are called insurers. A life insurance company is a major instrument for the mobilization of savings of people. The committee emphasized that in order to improve the customer service and increase the coverage of insurance industry should opened up to competition. it had proposed setting up an independent regulatory body. in many other countries. fidelity. debentures and term loans) exceeded Rs. As on 31. more than Rs. The decision to allow entry is the process of underwriting of risk. When you toss a coin. (b) collect the share or contribution (called premium) from all of them. The insurer is in the position of a trustee as it is managing the common fund.3. If the coin is tossed 10 times. and (c) pay out compensation (called claims) to those who suffer. particularly from the middle and lower income groups. Personal accident and sickness insurance. · Insurance Companies must be encouraged to set up unit linked pension plans · Computerization of operations and updating of technology to be carried out in the insurance industry. Life insurance includes all risks related to the lives of human beings and General insurance covers the rest. What is Non-life in India is termed as non-life in India. In India. 12000 crores in the State Electricity Boards. will be realized in practice. setting up industrial estates and directly financing industry. Marine (dealing with all transport related risks and ships) and Miscellaneous (dealing with all others like liability. The premium to be charged depends on this assessment of the risk. 30000 crores. which is the basis of premium calculation. The premium is determined on the same lines as indicated in the examples above. the chance of a head or tail coming up is half.. These expectations are based on studies of occurrences in the past and the use of statistical principles. motor crop. insurers have to insure large numbers of risks. Investments are made out of savings. is classified as is classified as life . The premium is based on expectations of the losses. but in Property and Casualty some other countries. The variation will be less as a percentage. in statistics. 100 crores. Hence. Larger the spread of business better is the experience in relation to expectations. it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs. 130000 crores were directly in Government (both State and Centre) related securities. the larger the numbers (of risks) included in the pool. But at the same time. the total investments of the LIC exceeded Rs. one cannot be sure that the head will come up 5 times. 4000 crores in water supply and sewerage systems. That means that the management of the insurance business requires care to prevent entry (into the group) of people whose risks are not of the same kind as well as paying claims on losses that are not accidental. Both underwriting and claim settlements have to be done with great care.
as in the case of the LIC. therefore. Without insurance. trade and commerce will find it difficult to face the impact to major perils like fire. The management of life insurance companies are required to keep this aspects in mind and make all its decisions in ways that benefit the community. Apart from investments. These amounts are collected by way of premiums. Every premium represents a risk that is covered by that premium. 7 | Comparative analysis of LIC and private insurance companies . floods. This applies also to its investments. if their debtors default. benefit the society at large. financed by it.A life insurance company will have large funds. is reduces to ashes by terrible fire. Financiers. these vast amounts represent pooling of risks. The funds are collected and held in trust for the benefit of the policyholders. business and trade benefit through insurance. like banks. collapse if the factory. Their investments. etc. In effect. That is why successful insurance companies would not be found investing in speculative ventures. Insurers cover also the loss to financiers. earthquake.
I tried to find out most of the information required to compare the LIC and private insurance companies. Type of research design : Analytical Research b. productivity and efficiency) 3. Data collection : Secondary Sources c. Bar Graph RESEARCH PROCESS In this research my research objective was to compare the performance of LIC and Private insurance companies. To compare grievance management of LIC and private insurance companies. Growth in number of Policies · Growth in Market share 3. Productivity (15%) · Business per Branch · Income per Branch · New Premium per Branch 4. Statistical Tools : Ratio Analysis. To find out the performances of LIC and private insurance companies in each category (size. Now these Points have been multiplied with the weightage of that factor. Size (25%) · Total Premium · Total Income · Size of Balance Sheet · Total number of Policies · Total number of Branches 2. To compare the performance of LIC and private insurance companies in India. growth. Grievance Handling (20%) I have used the Secondary data of last five financial years. RESEARCH DESIGN : a. Growth (40%) · Growth in Premium · Growth in Income . web sites and in some cases I personally met some employees of some insurance companies.CHAPTER 2 RESEARCH METHODOLOGY RESEARCH OBJECTIVES: 1. 8 | Comparative analysis of LIC and private insurance companies . For this purpose I decided the four broad categories under which I have compared the LIC and Private insurance companies. In Analysis I have found all the required data and on the basis of performance gave the rank to LIC and Private Insurance Companies on each factor and then points. And then after the analysis of each factor a consolidated point table has been prepared to know that which sector is performing better than other. Under these Broad Categories I have analyzed 13 factors which are: 1. 2. I have collected data from the various balance sheet of LIC and other private insurance companies.
CHAPTER 3 ANALYSIS AND INTERPRETATION 9 | Comparative analysis of LIC and private insurance companies .
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CHAPTER 4 FINDINGS & CONCLUSIONS 28 | Comparative analysis of LIC and private insurance companies .
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