“A Review of the Growth and Progress of the Life Insurance Corporation of India (LIC) in the PostLiberalisation Period”

(With reference to the city of Mumbai, 2002-2012)

A SYNOPSIS SUBMITTED TO THE SANT GADGE BABA AMARAVATI UNIVERSITY, AMARAVATI, MAHARASHTRA FOR THE DEGREE OF DOCTOR OF PHILOSOPHY (PH.D.) IN ECONOMICS

BY WAMAN GOVINDRAO NAKHALE (M.A., M.Phil., B.Ed.) UNDER THE GUIDANCE OF DR. S. N. TADE
(M.Com., M.A., Ph.D.) (Head, Department of Economics, Narsing College, Akot, Dist. Akola)

SANT GADGE MAHARAJ AMARAVATI UNIVERSITY AMARAVATI, MAHARASHTRA JANUARY, 2012

1

With the entry of private sector players backed by foreign expertise. research article published in e-journal – www.(I) Introduction: Origin of the Research Problem: With largest number of life insurance policies in force in the world. In India. The insurance business grew at a faster pace 1 2 http://www. 450 billion.irda. It’s a business growing at the rate of 1520% annually and presently is of the order of Rs. The General insurance business in India. Indian insurance market has become more vibrant. can trace its roots to the Triton (Tital) Insurance Company Limited. Together with banking services. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies. The Oriental Assurance Company was established in 1880. It was the first company to charge same premium for both Indian and non-Indian lives. insurance is generally considered as a tax-saving device instead of its other implied long term financial benefits. in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage. it adds about 7% to the country’s GDP. nearly 80% of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards.gov. Gross premium collection is nearly 2% of GDP and funds available with LIC for investments are 8% of GDP. Several frauds during 20's and 30's sullied insurance business in India.com. the Insurance Act of 1938 was introduced exercise strict control over insurance business. Overview of Insurance Sector in India.in Pithadia Vijay (2006). the first general insurance company established in the year 1850 in Calcutta by the British. In 1938. Even today. By 1938. Life Insurance Corporation of India dominates Indian insurance sector.indiamba. Insurance happens to be a mega opportunity in India. 2 . The Bombay Mutual Life Insurance Society started its business in 1870. Interestingly.2 Insurance regulation formally began in India with the passing of the ‘Life Insurance Companies Act of 1912’ and the ‘Provident Fund Act of 1912’. there were 176 insurance companies. on the other hand. The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows.1 Yet.

The committee submitted its report in 1994 wherein. lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. They stated that foreign companies be allowed to enter by floating Indian companies. The objective was to complement the reforms initiated in the financial sector. In the private sector 22 life insurance and 8 general insurance companies have been registered. the Government set up a committee under the chairmanship of R. the Government of India liberalized the insurance sector in March 2000. the share of Insurance funds has increased from 8. there is a 26 percent equity cap for foreign partners in an insurance company. insurance remained an urban phenomenon. among other things. N. This was in conformity with the Government's chosen path of State lead planning and development. Since nationalisation. brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. Under the current guidelines. In 1993.after independence. There is a proposal to increase this limit to 49 percent. with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill. The Government of India in 1956. former Governor of RBI. it recommended that the private sector be permitted to enter the insurance industry. to propose recommendations for reforms in the insurance sector. preferably a joint venture with Indian partners. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001. Nationalization was justified on the grounds that it would create much needed funds for rapid industrialization. In India. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. only 10% of the market share has been 3 .9% in 2003-04. Indian companies strengthened their hold on this business but despite the growth that was witnessed. Malhotra. Present Scenario: Following the recommendations of Malhotra Committee.7% in 1993-94 to 14.

Erode Arts College. With the entry of the private insurers. Life Insurance Corporation acted as a monopolist in the market for more than half a decade but now the private insurance companies have already acquired 13 percent of the market share in the business. the private insurers have already wrested over 33 percent of the market. Most customers were under-insured with no flexibility or transparency in the products. 4 Sadhak H. lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. the potential of the Indian insurance industry is huge. They are coining money in new niches that they have introduced. The year 1999 saw a revolution in the Indian insurance sector. 3 A. And in the popular unit-linked insurance schemes. 3 This vast potential can be tapped only by a large number of insurance. not as a product giving protection.4 Life Insurance Market in India The Life Insurance market in India is an underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers. The penetration of life insurance products in India is very low with almost 400 million of the insurable population.. The state owned LIC sold insurance as a tax instrument. Globalization and Life Insurance. Vijay Kumar (2003). they have a virtual monopoly with over 90 percent of the customers. ‘Research Paper on Globalization of Indian Insurance Sector – Issues and Challenge’. as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority (IRDA) Bill. With an annual growth rate of 15-20% and the largest number of life insurance policies in force. (II) Statement of Problem: Globalization and liberalization of the insurance sector and subsequent entry of local and foreign players in the sector has posed new challenges and opened up new frontiers for the Indian insurance sector. Tamil Nadu.tapped by LIC and GIC and the balance 90% of the market still remains untapped. V Issue 1. The growing popularity of the private insurers shows in other ways. Bimaquest – Vol. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business. January 2005. 4 . the rules of the game have changed.

except Reliance Life Insurance. and also general insurance. have collaboration with foreign insurance companies to the extent of 26% foreign equity. Against this background. both life as well as mediclaim. high rate of inflation. unclear policy regime and falling saving rate are collectively posing a great challenge to insurance sector as a whole. huge losses in private life insurance companies.After liberalisation and globalization of the insurance sector. economics and insurance. Insurance had evolved in itself a separate discipline with growing significances and need of insurance cover. The government is planning to raise this limit to 51% in near future. especially in rural India. However. stagnating growth prospects. insurance sector provides much needed capital for industrial sector through capital formation. insurance drives the wheels of economy to higher growth and development. National Status: Nationally a number of studies have been undertaken on Life Insurance Corporation of India and its products and marketing strategies. From economics point of view. it has become necessary to review the impact of liberalisation of insurance sector on Life Insurance Corporation of India and the future of private life insurance companies under the title: “A Review of the Growth and Progress of the Life Corporation of India (LIC) in the Post-Liberalisation Period” (III) Interdisciplinary Relevance: Insurance is the issue which touches the life of each of us. Commercially. is a hot destination for foreign equity participation. The present research topic deals with commerce. (IV) Review of Research and Development in the Subject: International status: Internationally the subject assumes great significance as all 22 private life insurance companies in India. Thus. especially with growing modernization and urbanization and uncertainty of human life. no 5 . Indian insurance sector with its vast untapped potential.

Wadikar Ashok6 (2001) in his Ph.D. “Life Insurance as a Financial Product”. University of Pune. thesis studied life insurance as a financial product.D. The data has been derived from issues of Swiss Re Sigma. Gholamreza Enayati7 (2006) in the Ph. The objective of this study was to assess the potential for innovativeness in the public sector insurance industry in India. The testing of implications of Portfolio Model is done through a regression exercise which includes time series and cross regression analysis. Thesis. The study focuses on the importance of innovation and reason for choice of subject. Ph. Thesis. 6 . Ph.exhaustive study has been conducted on the present topic. Ashok (2001). The Mean. The objective of this study was to identify the relationships between profitability in marketing strategies and three distinct factors. second. University of Pune. first.Equities.D. The findings of some of the research studies on Indian insurance sector have been quoted below: Kutty Shahsidharan5 (2000) in his Ph. Thesis. University of Pune.D. thesis has studied the innovativeness in the insurance industry. the degree of lower and middle-level management participation. Bonds.D. with its role and value additions being examined in conjunction with other financial instruments. The researcher has developed a model which seeks to make a comprehensive effect for creating innovative organization. International Monetary Fund and World Bank. thesis has studied profitability evaluation in marketing strategies planned by insurance companies in Pune. and Mutual Funds. 7 Gholamreza Enayti (2006). The study developed a theoretical model of demand based on ‘Modern Portfolio Theory’ as developed by Markowtiz and others. Ph. ‘Innovativeness in the Insurance Industry. namely. Shashidharan (2000). ‘Profitability Evaluation in Marketing Strategies Planned by Insurance Companies in Pune. Variance and Co-variance measures for these assets have been estimated. India’. especially giving a simultaneous emphasis on the organizational strategy and its member’s personal potential.D. the extent of marketing training programmes for 5 6 Kutty. the degree of formality in formulating those strategies. third. A simulation exercise has been developed to demonstrate how the optimal share of life insurance is actually determined in a portfolio which includes three other assets. It sees an innovative organizational culture as a result of this comprehensive strategy and points out to organizational innovation as a flowering from such resultant culture. This study is in a wider financial environment. Wadikar.

On the other hand. if coupled with the positive attitude of top management towards allowing these programmes. (V) Significance of the Study: With globalisation and liberalization. Ph. The positive effect of marketing training programmes on profitability has comprehensive and strong support among all parties involved. private companies are more diversified and customer focused operating with a basic motive of making profit through customer satisfaction. it is of great significance to analyse the impact of liberalisation on LIC and performance of private insurance companies in India. the insurance sector has been facing a lot of changes. The study finds out that a substantial part of the increase in household savings is due to increased household holding of currency and bank deposits. ‘The Structure of Financial Savings in the Indian Household Sector’. functioning purely on social considerations in a rigid way. is very promising for the industry. Under this situation. Indira Gandhi Institute of Development Research (IGIDR). Among financial assets. thesis has studied the structure of financial savings in the Indian household sector at a disaggregated level. Even the gestation period of these private companies is getting prolonged due to stringent rules and uncertain policy regime for these companies. Thus. Thesis. the present study will study the impact 8 Longjam. The biggest asset of the LIC is its past legacy and strong foundation in terms of fundamentals. 7 . Mumbai. The present study aims at critically analysing the growth and progress of Life Insurance Corporation of India (LIC) in post liberalisation era. Ibotombi (2006).marketing people. However. this support.D. The study concluded that the marketing people of insurance companies generally do not believe that the formality of their marketing programmes can positively affect profitability. bank deposits are found to have larger income elasticity of savings than contractual savings. Longjam Ibotombi8 (2006) in the Ph. the fact remains that the LIC is still a state owned corporation.D. The study assumes a great significance in the present context when most of the private life insurance companies are incurring huge losses. The entry of private life insurance companies has compelled the LIC to change its strategy from business orientation to customer orientation. its present status and future trends in the life insurance industry.

To gauge the effect of private life insurance companies on the Life Insurance Corporation of India. 4. However with the sweeping changes in the global and Indian outlook. the same has been deregulated. the present study is based on the following hypothesis: 8 . To suggest and recommend measures for tapping untapped insurance potentials of Indian population through a healthy co-existence. the present study focuses on the following objectives: 1. 6.of the entry of private insurance companies on the LIC and subsequent changes initiated by the LIC in its functioning in order to cope with private competitors and meet the changing requirements of the society in rapidly changing socio-economic environment. 5. To analyze the growth of life insurance business in India in the postliberalisation period. To analyse the growth and progress of the Life Insurance Corporation of India in post-liberalisation period. has remained the monopoly of State. To critically evaluate the role and performance of Life Insurance Corporation of India during pre-liberalisation era. Against this background and objectives. To understand the perception of policyholders towards private life insurance companies and the Life Insurance Corporation of India. 2. (VI) Objectives of the Study: Against the above background. (VII) Research Methodology: The various aspects of research methodology based on the pilot study have been discussed below: Statements of Hypotheses: Insurance is a social sector and therefore. This is offering great opportunities and posing new challenges to the vast untapped insurance potential in the country in general and the public sector giant Life Insurance Corporation of India in particular. 3.

10.2000 Name of the Company HDFC Standard Life Insurance Co. 101 Date of Registration 23. Tata AIG Life Insurance Co.11.08. ICICI Prudential Life Insurance Co. Consumers are sill loyal to the state-owned Life Insurance Corporation of India and are really very slow in shifting their loyalty to the private insurance companies. 22 private life insurance companies are registered with IRDA. 4. Universe: This research proposal shall be considered as a pilot study to have a rational assessment of various private insurance companies that have entered the Indian insurance sector in the post-reform period and their impact on the traditional public sector giant – the ‘Life Insurance Corporation of India (LIC)’.1 Private Life Insurance Companies registered with the IRDA Sr.2001 31. Ltd. the Life Insurance Corporation of India and its branches across the country as also the private insurance companies with their network in India will constitute universe for the present study. Presently. The entry of private insurance players with foreign equity participation has created unhealthy competition in the sector which will adversely affect the interest of consumers. 3. Ltd.02.2001 12. SBI Life Insurance Co. Registration No. Private insurance companies are finding difficult to get a foothold in the Indian market where insurance is still considered to be an instrument of investment and tax-saving rather than a security. Bajaj Allianz Life Insurance Co. 2. Ltd.2001 03.2001 Max New York Life Insurance Co.2000 10.01. No. the LIC has maintained its top position and will continue to maintain it in future. Thus. Limited . 1 2 3 4 5 6 7 8 9 104 105 107 109 110 111 114 116 15.2000 24.2001 30. In spite of the onslaught of private insurance companies in the postliberalisation era. Ltd. The following is the list of registered private life insurance companies in India as on 31st December 2009: Table 1. ING Vysya Life Insurance Co. Birla Sun Life Insurance Co.08. Ltd. Ltd.11.03. Ltd.1.2001 02.01. 9 . Kotak Mahindra Old Mutual Life Insurance Ltd.

2009 Source: www. Star Union Dai-ichi Life Insurance Co. Ltd.2008 19 138 27. Sr. India First Life Insurance Co.08. The sampling technique used for the purpose will be Purposive Random Sampling Technique. Max New York Life Insurance Co. Future Generali India Life Insurance Co. 1. ICICI Prudential Life Insurance Company Ltd. 2.07.12. Ltd. Ltd. Ltd. Ltd.2006 04. Ltd. Sample: The growth and development of LIC and private insurance players will be analysed by comparing the quantitative parameters like number of policies.05.12.9 Aviva Life Insurance Co. Tata AIG Life Insurance Company Ltd. SBI Life Insurance Company Limited .10 Canara HSBC Oriental Bank of Commerce Life Insurance Co. 11.. Changed it name from IDBI Fortis Life Insurance Company Limited from August 2010.2004 17.2002 06. Aegon Religare Life Insurance Co. Kotak Mahindra Old Mutual Life Insurance Limited Birla Sun Life Insurance Company Ltd. Ltd.2005.2002 14.01. a sample of 600 respondents will be selected. Sahara India Life Insurance Co.2008 20 140 27.05. and The following private insurance companies. For detailed study of the research objective and establishment of hypotheses. Shriram Life Insurance Co. Ltd. profitability. Bharti AXA Life Insurance Co. 9.2008 21 142 26.06.org/hist.11. Ltd. Ltd.2002 to 29.2007 19. 4. Name of the Company HDFC Standard Life Insurance Company Ltd. 8. Reliance Life Insurance Company Limited. 6.02.10 11 12 13 14 15 16 17 18 117 121 122 127 128 130 133 135 136 06. IDBI Federal Life Insurance Co.09. Aviva Life Insurance Co.2001 03. 10 10 .irdaindia. while qualitative parameters will be analysed by interviewing policy holders and seeking their response in terms of customer satisfaction and customer delight. ING Vysya Life Insurance Company Private Limited Bajaj Allianz Life Insurance Company Limited Metlife India Insurance Company Ltd. DLF Pramerica Life Insurance Co. 7. India Pvt. Life Insurance Corporation of India and its branches. number of agents. No. The sample for the research shall constitute: 1.2008 22 143 05.2005 14. 3. Reliance Life Insurance Co. Ltd. 12.11.htm Metlife India Insurance Co. Ltd. Ltd. branch network. India Ltd. Ltd. 5.06. products offered.2007 08. claims settled. 2.01. etc. 10.09. 9 Earlier AMP Sanmar Life Insurance Company Limited from 3.

cost and geographical constraints and therefore. Hyderabad and Ahmedabad. Pune. Banagalore. Tools of Data Collection: Considering the nature of respondents. Chennai. Mumbai.Scope of the Study: (a) Geographic Limitation: Geographically the sample will be collected from cities such as Delhi. Research Report: The research report will be in the form of ‘Popular Research Reporting Method’. responses given by policy holders. Opinionnaire shall be used to collect specific opinions. the following techniques of collecting primary data would be used: Tools Questionnaire Utility Justification Questionnaire method is used to Questionnaire will help to extract collect first hand basic information opinion of respondents about the regarding profile of various qualitative performance indicators LIC and other private categories of respondents mentioned of which cannot be extracted otherwise Opinionnaire: from the secondary sources. Opinionnaire also provides greater insight in to the problem under consideration. an attempt has been made to cover all the aspects related to the Indian insurance sector. Nashik. the possibility still exists that the technical aspects many not be comprehended to 11 . the results of the study cannot be treated as generalizations. attitudes and views of the of agents companies authenticity and to of employees establish above and collecting qualitative data companies and their performance. (VIII) Limitations of the Study: The present study is restricted by time. Opinionnaire is used to check the authenticity and relevance of data collected through questionnaire. Although. (b) Time Limitation: Data from the year 2003 to the year 2010 will be considered for the present study. Kolkata.

(IX) Tentative Chapterisation: 1.wikipedia. 5. “Life Insurance as a Financial Product”. 6. Review of Literature. 5. Findings and conclusions. However. Indira Gandhi Institute of Development Research (IGIDR).D. ‘Research Paper on Globalization of Indian Insurance Sector – Issues and Challenge’. 3. Websites: 1. Vijay Kumar (2003). the suggestions and recommendations at the end will go a long way in establishing a conducive playground for the LIC and private insurance companies for better tapping of untapped opportunities in the market. Globalization and Life Insurance. 2. 4. Thesis. V Issue 1. Longjam. Mumbai. Tamil Nadu. January 2005.D.full extent. 6. (X) References: 1.com. 3.org/wiki/Rigveda 12 . University of Pune. Gholamreza Enayti (2006). India’. Bimaquest – Vol. http://en. Thesis. ‘Profitability Evaluation in Marketing Strategies Planned by Insurance Companies in Pune. Analysis and Interpretation of data. Overview of Insurance Sector in India. Kutty. Pithadia Vijay (2006).D. At the same time. 7. Thesis.D. Erode Arts College. Research Methodology. Suggestions and Recommendations. Development of LIC in pre-liberalization and post liberalization period. research article published in e-journal – www. 7. A. Ph. Wadikar. Introduction.. University of Pune. University of Pune. Ashok (2001). the results of the study will open new frontiers for young researchers to carry this study further. Ph. ‘The Structure of Financial Savings in the Indian Household Sector’. Sadhak H. 4. Shashidharan (2000). Ph. Ph. Thesis.indiamba. ‘Innovativeness in the Insurance Industry. Ibotombi (2006). 2.

3. 2.nic. The Economic Times. 4. IRDA Annual Reports. 5.in News Papers: 1. …………………….com http://www. IRDA Annual Reports and Journals: 1. The Economic Times Knowledge Series. IRDA Journals. Business Standard. Signature of Research Guide 13 . _________________________________ Waman Govindrao Nakhale Signature of Research Candidate Dr. 5.2. The Times of India. 3.irda.org http://mospi.in/ http://wealth.moneycontrol. 4. ET Investor’s Guide. http://irdaindia. 2.gov.

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