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LICReport FYP PDF
LICReport FYP PDF
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IRLM project
SSIM
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Table of Contents
Insurance-an Introduction ...................................................................................................... 3
The History of Insurance Worldwide .................................................................................... 4
Insurance Industry in India .................................................................................................... 5
Life Insurance at a glance ....................................................................................................... 7
Insurance Act 1938 ................................................................................................................... 8
Malhotra Committee ................................................................................................................. 9
Regulator of Insurance Industry in India-IRDA....11
Structure of Insurance Industry...13
LIC-Introduction...14
Channels of Distribution........15
New Business brought in by all Channels of Distribution...17
Span of Organization..19
Investment in Government and Social Sector...20
Asset Under Management...21
Products..21
Impact of on Financial Crisis on LIC...22
Awards won by Lic..23
Summary.23
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Insurance An Introduction :
Insurance is actually a contract between 2 parties whereby one party called insurer
undertakes in exchange for a fixed sum called premium to pay the other party happening
of a certain event.
Insurance described as a social device to reduce or eliminate risk of life and property.
Under the plan of insurance, a large number of people associate themselves by sharing
risk, attached to individual.
Large number of people exposed to a similar risk , With the help of Insurance, makes
contributions to a common fund out of which the losses suffered by the unfortunate few,
due to accidental events, are made good.
The risk, which can be insured against include fire, the peril of sea, death, incident, &
burglary. Any risk contingent upon these may be insured against at a premium
commensurate with the risk involved.
Insurance is a contract whereby, in return for the payment of premium by the insured, the
insurers pay the financial losses suffered by the insured as a result of the occurrence of
unforeseen events.
In order for the concept of insurance to arise a pre-payment of some type is required. In
the case of typical, everybody general auto, health and life insurance for example the pre
payment is in the form of a premium. Prior to the eve to the year 2000 thousands of people
flocked to the stores stocking up on numerous supplies. The supplies they purchased would
act as a reimbursement in the case of loss.
Early insurance goes back to the Egyptians times. It was known that around 3000 BC,
Chinese merchants dispersed their shipments among several vessels to avoid the possibility
of damage or loss. There are some insurance companies around today in the united states
that provided insurance back in the mid 1700s , as well as some that provided relief to
banks during the 1930s and depression. Today, there is insurance for many aspects of
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daily living: business, auto, health, life, travel. Each of those categories includes sub
categories, branching of into numerous divisions.
underwriter. The first stock companies to engage in insurance were chartered in England in
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1720, and in 1735, the first insurance company in the American colonies was founded at
Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and in
Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first life
insurance corporation in America, for the benefit of Presbyterian ministers and their
dependents. After 1840, with the decline of religious prejudice against the practice, life
insurance entered a boom period. In the 1830s the practice of classifying risks was begun.
The New York fire of 1835 called attention to the need for adequate reserves to meet
unexpectedly large losses; Massachusetts was the first state to require companies by law
(1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly
nature of fires in structurally dense modern cities. Reinsurance, whereby losses are
distributed among many companies, was devised to meet such situations and is now
common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain
required employers to insure their employees against industrial accidents. Public liability
insurance, fostered by legislation, made its appearance in the 1880s; it attained major
importance with the advent of the automobile.
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1920s and 1930s tainted the image of insurance industry in India. In 1938, the first
comprehensive
legislation regarding insurance was introduced with the passing of Insurance Act of 1938
that provided strict State Control over insurance business.
Insurance sector in India grew at a faster pace after independence. In 1956, Government of
India brought together 245 Indian and foreign insurers and provident societies under one
nationalized monopoly corporation and formed Life Insurance Corporation (LIC) by an
Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore.
Before 1956, insurance was private with minimal government intervention. In 1956, life
insurance was nationalized and a monopoly was created. In 1972, general insurance was
nationalized as well. But, unlike life insurance, a different structure was created for the
industry. India had the nineteenth largest insurance market in the world in 2003. Strong
economic growth in the last decade combined with a population of over a billion makes it
one of the potentially largest markets in the future. Insurance in India has gone through
two radical transformations. One holding company was formed with four subsidiaries. As a
part of the general opening up of the economy after 1992, a Government appointed
committee recommended that private companies should be allowed to operate. It took six
years to implement the recommendation. Private sector was allowed into insurance business
in 2000. However, foreign ownership was restricted. No more than 26% of any company can
be foreign-owned.
A totally regulation free regime ended in 1912 with the introduction of regulation of life
insurance. A comprehensive regulatory scheme came into place in 1938. This was disabled
through nationalization in what follows, we examine the insurance industry in India
through different regulatory regimes. But, the Insurance Act of 1938 became relevant again
in 2000 with deregulation. With a strong hint of sustained growth of the economy in the
recent past, the Indian market is likely to grow substantially over the next few decades.
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The rest of the chapter is organized as follows. First, we study the evolution of insurance
business before nationalization. This is important because the denationalized structure
brought back to play important legal rules from 1938. Next we analyze the nationalized era
separately for life and property casualty business as they were not nationalized
simultaneously. Much of post-independence history of insurance in India was the history
of nationalized insurance. In the following section, we examine the new legal structure
introduced after the industry was denationalized in 2000. In the penultimate section, we
examine the current state of play and projected future of the industry.
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Whole life insurance provides permanent protection insured dependents while building a
cash value account. With this type of insurance, the insurance company manages the
policies various accounts.
In the first few years, when youre young, its cost will be low, so the bulk of the money goes
to pay the agent and into an investment account. However, as you get older, the cost of
insuring you increases, so less of your premium goes into the investment account. The
money that goes into the account in the early years of your policy therefore grows. The cash
value of your whole life policy is the amount youd get if you decide to surrender it.
Whole life insurance is so named because its designed to stay in force throughout your life.
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Malhotra Committee
In 1993, the first step towards insurance sector reforms was initiated with the formation of
Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N.
Malhotra. The committee was formed to evaluate the Indian insurance industry and
recommend its future direction with the objective of complementing the reforms initiated
in the financial sector.
Key Recommendations of Malhotra Committee
Structure
Government should take over the holdings of GIC and its subsidiaries so that these
subsidiaries can act as independent corporations.
No Company should deal in both Life and General Insurance through a single Entity.
Foreign companies may be allowed to enter the industry in collaboration with the domestic
companies.
Only one State Level Life Insurance Company should be allowed to operate in each state.
Regulatory Body
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Mandatory Investments of LIC Life Fund in government securities to be reduced from 75%
to 50%.
GIC and its subsidiaries are not to hold more than 5% in any company.
Customer Service
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(5) Under Assets, Liabilities, and Solvency Margin of Insurers, the Insurance Regulatory
and Development Authority has set up strict guidelines on asset and liability management
of the insurance companies along with solvency margin requirements. Initial margins are
set high (compared with developed countries). The margins vary with the lines of business.
Life insurers have to observe the solvency ratio, defined as the ratio of the amount of
available solvency margin to the amount of required solvency margin: (a) the required
solvency margin is based on mathematical reserves and sum at risk, and the assets of the
policyholders fund; (b) the available solvency margin is the excess of the value of assets
over the value of life insurance liabilities and other liabilities of policyholders and
shareholders funds.
(6) It sets the reinsurance requirement for (general) insurance business. For all general
insurance, a compulsory cession of 20% regardless of line of business to the General
Insurance Corporation, the designated national reinsurer was stipulated.
(7) Under the Registration of Indian Insurance Companies, it sets out details of
registration of an insurance company along with renewal requirements. For renewal, it
stipulates a fee of one-fifth of one percent of total gross premium written direct by an
insurer in India during the financial year preceding the year. It seeks to give detailed
background for each of the following key personnel: Chief Executive, Chief Marketing
Officer, Appointed Actuary, Chief Investment Officer, Chief of Internal Audit and Chief
Finance Officer. Details of sales force, activities in rural business and projected values of
each line of business are also required.
(8) Under Insurance Advertisements and Disclosure, details of insurance advertisement
in physical and electronic media has to be detailed with the Insurance Regulatory and
Development Authority. The advertisements have to comply with the regulation prescribed
in section 41 of the Insurance Act, 1938. The Act of 1938 says, No person shall allow or
offer to allow, either directly or indirectly, as an inducement to any person to take out or
renew or continue an insurance in respect of any kind of risk relating to lives or property
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in India, any rebate of the whole or part of the commission payable or any rebate of the
premium shown on the policy, nor shall any person taking out or renewing or continuing a
policy accept any rebate, except such rebate as may be allowed in accordance with the
published prospectus or tables of the insurer.
(9) All insurers are required to provide some coverage for the rural sector. It is called the
Obligations of Insurers to Rural Social Sectors
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LIC Housing Finance Established in 19th June, 1989 in Dubai with the objective of
providing long term finance for construction of houses or apartments.
LIC Housing Finance Limited Care Homes A wholly owned subsidiary of LIC Housing
Finance which builds Assisted Community Living Centers for senior citizens.
{Rs. In Crores}
1.
Total Income
Rs 2,06,363
2.
Rs 1,49,706
3.
Rs 57,623
4.
Rs 686616
5.
Total Assets
Rs 8,03,820
The business performance for LIC in the last fiscal year (07-08) has been good compared
to the fiscal year (06-07). There has been a significant growth in total assets and total
income earned.
Channels of Distribution
Distribution
Individual Agent:
Agent The individual agent has been the bedrock and the lynchpin in the
marketing of insurance, especially life insurance. The professional agent has been the
strongest link between the life insurer
and
the
has the onerous role of explaining the concepts, terms and conditions, benefits and
privileges of the insurance contract. He has to analyze the financial requirements and
risks faced by the customers and market insurance plans suited to the needs and means of
the customers. All insurance companies, and life insurance companies in particular,
have
recognized
the
agents has grown at a spectacular rate. The total number of agents on they roll is 11,03,047
as on 31.03.2007 as against 10,52,283 as on 31.03.2006.
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Corporate Agents:
Agents : The number of corporate agents has grown in recent years.
Corporate agent is a concept introduced with a view to taking advantage of the
presence of a large number of entities with a sizeable client base, contacts and
goodwill
already operating in the market. With multi locations and a network of people
assisting
them, these entities have a different structure and purpose. Hence their existing
network could be utilized to market insurance. The corporate agent could thus be
defined as a person - meaning a firm or company formed under the Companies Act,
1956 or a banking company or a Bank/RRB or a co-operative society registered under the
Co-operative societies Act, 1912 or a panchayat or a NGO/MFI covered under the Coop Societies Act or a NBFC registered with RBI or any other institution. They assist
greatly in the spread of insurance through
the
greater
reach
of
the
institutions.
Brokers:
Brokers: Brokers are permitted to sell products of more than one insurer. Brokers
have been very predominant in the non life arena. Large risks require quite
sophisticated expertise. Brokers have played a very key role in this area both in selling
products and in servicing of Insurance claims. Brokers have now also entered the Life
Insurance market.
Bancassurance:
Bancassurance: Bancassurance is developing as an important channel in India. This is
due to the large reach and customer base of banks in both urban and rural areas in India. The
persistency rate in Bancassurance, due to the continuous contact with the client is better
than in other channels. The ease of payment of premium and the facility of maturity/claim
payments through the bank account make it a customer friendly channel
Referrals:
Referrals: This is a new concept very similar to getting a prospecting list and leads to
effect sales with customers. It is evident that in addition to banks, there could be various
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other entities which could act as a referral provider due to the large database of
members/clients, like credit cardholders association members, society members etc. In
short, such institutions could share or market their database to provide leads to the
intermediaries
to
sell
environment,
new
innovative marketing systems have evolved. The use of inter-net, web based sales, e- marketing,
telecalling, mobile SMS have made giant strides in reaching out to customers. This is
an emerging channel which in future may grow in size and proportion of sales. This
channel requires active regulation which should be on issues of transparency, disclosure,
privacy, contract, TRAI guidelines etc. It would be necessary to give full complete
information through soft copies of proposal forms, schedules, policies etc.
Sum Assured
First Premium
( in lakh)
( in crore )
Composite
Composite
375.90
2, 75, 457.65
43,812.86
Growth Rate
-1.62 %
-9.12 %
10.80%
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Growth Rate
Group Schemes
Rate
153.71 lac
83%
113.67 lac
98%
Premium Income
10356.94
-9%
192.56
91%
(Rs. In Crore )
Sum Assured
( Rs. In crore)
Individual Assurance
23.39
5.10`
3, 06, 711
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Span of Organization
Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices,
7 zonal offices and the corporate office. LICs wide are network covers 100 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.
LICs ECS and ATM premium payment facility is an addition to customer convenience.
Apart from on-line kiosks and IVRS, Info Centres have been commissioned at Mumbai,
Ahmadabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other
cities. With a vision of providing easy access to its policy holders, LIC has launched
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.
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As on
31.03.06
31.03.07
31.03.08
236959
272498
298157
58928
64285
89195
295887
336783
387352
19807
22451
24325
b) POWER
29740
37881
41120
8288
7500
6649
725
1516
1154
e) OTHERS
Sub Total (B)
3954
62514
4398
73746
8774
82022
TOTAL
304002
01.
CENTRAL GOVT.SECURITIES
02.
358401
410529
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Products:
Products:
They have in their basket more than 40 different plans catering to the differing needs
of different segments of the society,covering a age group of 0-80 year-,basic insurance
plans (whole life, endowment and money back), Term Assurance Plans, Pension Plans,
Capital Market linked Plans, Health Plan etc.
New products launched in 2007-08
1. Jeevan Bharti I (Money Back Plan exclusively for Women)
2. Market Plus-I (Unit linked Pension Plan)
3. Money Plus-I (Unit linked Insurance plan)
4. Anmol Jeevan-I (Term Insurance Plan)
5. Child Career Plan & Child Future Plan (Childrens Plans)
6. Health Plus- (Unit Linked)
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Value of the
Fund on 10.10.08
% Change in the
Value
SENSEX
Jayaprakash Ass
Reliance Infra
DLF
Sterile Inds
ICICI Bank
Reliance Comm
Tata Steel
Tata Motors
L&T
Hindalco
Grasim Inds
Reliance Inds
Tata power
Value of the
Fund on
08.01.08
21207
100000
100000
100000
100000
100000
100000
100000
100000
100000
100000
100000
100000
100000
10528
16483
20319
24479
26504
27304
29516
32238
38873
41044
42512
43431
50057
49429
-50.36
-83.52
-79.68
-75.52
-73.5
-72.7
-70.48
-67.76
-61.13
-58.96
-57.57
-56.57
-49.94
-50 .57
LIC
100000
89715
-10.28
A person who has invested Rs. 100000 in Jayaprakash Ass, the present value of that
investment is Rs. 16493, which implies a loss 83.52%, while a person who invested
Rs.100000 in LIC, today the value of fund is Rs. 89713 which shows a loss of 10.28%.
LIC is a public sector insurer and a domestic investor. As such, they are not directly
affected by the global financial crisis. However, the volatility in Indian financial
market due to the uncertainty in global markets has affected returns they gt on their
investments. But LIC has an indisputable record of prudently planning its investments
and getting the maximum returns on the policyholders money.
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Awards Won
Won
Some of the recent awards received by LIC are
1. LIC has been ranked : Number One Trusted Service Brand in the Economic
Times Brand Equity Survey for the year 2008 for the 5th consecutive year, with
overall ranking across all categories going up from 27th to 12th.
2. Readers Digest Trusted Brand2008 in the platinum category.
3. SKOCH Challengers Award 2008 for our Micro Insurance Product Jeevan
Madhur.
4. Customer & Brand Loyalty Award 2008 in the Life Insurance category from
India times Mindscape.
5. Rated as the Most Preferred Life Insurance Company of the year at the CNBC
Awaaz Consumer Awards 2007 third time in a row.
6. Conferred Peacock Award for Excellence in Corporate Governance
7. Conferred Outlook Money NDTV profit-Best Life Insurer Award 2007
8. Web 18- Genius of the Web award -2007 For the best website in Insurance
Category.
9. Adjusted the Best Life Insurance Company of the year- at the Second NDTV
Profit Business Leadership Awards-2007.
Summary
The Life Insurance Corporation of India has been a nation-builder since its formation
in 1956. The Corporation has deployed the funds to the best advantage of the
policyholders as the community as a whole. Year on year LICs productivity and
profitability provides shareholders with an improving dual return - as co-operative
shareholders through a wider range of services and products and as investors in the
business, with a useful return on capital and an increasing share price. The LIC
investment strategy is very clear. It is based on their investment policy, Irda
regulations, Insurance Act and the LIC Act. According to the guidelines, 50 per cent of
the total investible funds must be in government securities - 25 per cent should be in
central government securities, and up to 50 per cent in both state and central
government securities. The market has come down by about 50 per cent from its peak in
January, but the value of their investments have come down by only 15-20 per cent. For
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LIC, the situation has turned out to be a boon, as the public is now more biased towards
public sector entities like them instead of investing in private companies.
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