You are on page 1of 8

What are the main corporate objectives of LIC?

KAVITA SINGH

Advertisements:

What are the main corporate objectives of LIC?


The objectives of nationalisation have been incorporated in the form of corporate objectives of LIC.
If the objectives of nationalisation are not fulfilled, whether the private insurers can fulfill those
objectives, what can be the next step if both institutions, i.e., the nationalised and private insurers
have not achieved the objectives of insurance? These questions are dispassionately analysed.
Rural Insurance:
The nationalisation of life insurance business in 1956 had aimed to spread the gospel of life
insurance business in the remote corners of the country.
In the word of the then Finance Minister: "The purpose of nationalisation was to see that the gospel
of insurance is stored as far and wide as possible so that we reach out beyond the more advanced
urban areas well into the hitherto neglected rural areas.
Millions of lives in rural areas were left uninsured because the private insurers did not like to carry
their business there. Now question arises whether private insurers including foreign companies
would like to conduct their business in rural areas.
The answer is certainly not because they would not be getting profit there. No private insurer would
like to do business on loss.
If the government is not agreeing to this logic, then why private airlines are not operating their
business in non-remunerative areas. The nationalised institutions are doing satisfactory business in
rural areas.
They have national mission and performing the business in urban as well as rural areas. The
insurance principle, inertia of large number is being followed by LIC and GIC.
No private insurer can work longer on national mission to help peoples 'progress and security
because they have the main motives of profit- making.' The Life Insurance Corporation has
developed corporate objectives.
"Spread life insurance much more widely and in particular to the rural areas reaching all insurable
persons in the country and providing them adequate financial cover against death at a reasonable
cost"
The rural business was unheard before 1955. After nationalisation, it has increased to Rs. 21,570
crore which was 39.0 percent of individual new business. Rural business of LIC in 1995-96 was 49
lakh policies out of the total 110 lakh policies issued in that year giving rural business to the extent of
45% of total new policies issued.

Can anyone think of such achievement by private insurer? Logics are hurled that nonbanking
institutions are fetching maximum business from rural areas. It should be analysed from safety and
security point of view.
The businesses procured by them are not safe and secure because many non-banking institutions are
getting business pressurising the rural people.
It should be known that many non-banking institutions are eloping with the money of people. They
open an office for some months and then close the office forever after extracting money from the
people.
One finds it difficult to understand whether the government is unaware or unable to prevent such
nefarious activities.
If the government is unable to govern, it should not talk of privatisation or denationalisation of
insurance industry. LIC and GIC are national institutions which are working for the nation and
people.
The LIC has covered a large number of people by insuring them under group insurance otherwise
they would have been uninsured on account of low premium paying capacity. The new business
under group insurance increased from Rs. 18.33 crore in 1966-67 to Rs. 50,651.43 crore in 1994-95.
All the four subsidiaries of General Insurance Corporation have tried to procure maximum business
for the benefit of people at large.
General insurance in rural areas have increased considerably under Personal Accident Social
Security amounting more than Rs. 300 crores and Hut Insurance Scheme amounting about Rs. 300
crore. Hit and Run schemes have benefited a large number of beneficiaries.
Life Insurance Corporation of India has formulated corporate objective "Meet the various life
insurance needs of the community that would arise in the changing social and economic
environment.
The total payment under social security group/schemes amounted more than Rs. 240 crore in 199192 and Rs. 550 crore in 1995-96. The LIC and GIC have been working hard to benefit rural people
through its branches which have been respectively 2024 and 2997 as, on March 1996.
The second objective of nationalisation of life insurance business was to conduct business with
utmost economy as the Finance Minister said, "The business must be conducted with utmost
economy and with the full realisation that money belongs to the policyholders.
The premium must be no higher than is 'warranted by strict actuarial consideration". The LIC has
accepted the corporate objectives. "Act as trustees of the insured public in their individual and
collective capacities.
Conduct business with utmost economy and with the fuurealisation that money belongs to the
policyholders". The trusteeship principle has been carried by the LIC as it has tried to reduce the
expense-ratio.
The expense ratio which was very high before nationalisation was brought to a lower level in 1995.
The overall expense ratio declined from 27.20% In 1957 to 21.35% in 1995 and the renewal expense
ratio have come down from 15.89% to 6.32% in the respective years. The corporation would have
reduced the expense ratio further had there been complete computerisation.

General Insurance Corporation along with its subsidiaries has attempted to reduce the expenses
considerably. The benefits of reduced expenses have been given to the policyholders in the form of
enhanced bonus and reduced premium.
The bonus of life policy per thousand sum assured has increased from Rs. 16 in 1956 to Rs. 86
varying to Rs. 95 in 1996 on whole life policies and Rs. 12.80 in 1952 to Rs. 69 varying to Rs. 78 on
endowment policies.
The lapse ratio to mean life insurance business in force has gone down from 7.6 per cent in 1955 to
3.1 per cent in 1991-92.
With increase life fund from Rs. 410.40 crores in 1956 to Rs. 72,780.06 crore-in 1996; the LIC has
achieved its corporate objective, i.e., maximise mobilisation of people's savings by making insurance
linked savings adequately attractive.
The life insurance carrying capacity that is the ratio of business in force to national income has
increased from 7.95% in 1951 to 30.30 per cent in 1995-96. The LIC has provided adequate financial
cover to the people of India.
The rising rate of business in force has clearly shown that the, LIC has attempted to provide adequate
financial cover to the people of India. The premium income as compared to national income has
revealed the capacity of LIC for enhancement of business.
The third objective of nationalisation of life insurance business was to develop national economy as
put in the words of the then Finance Minister, "Help development of National Economy in the right
perspective for the benefits of the societies as a whole."
Based on the objective, the corporate objective of LIC has been, "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 LIC is performing this job through decentralised investment. The percentage of LIC investment,
to national income has increased from 3.4 percent in 1956 to 6.26 percent in 1996. It had contributed
to Rs. 184 crores during the Second Plan and Rs. 40303 crore during four years of Eighth Plan.
No private sector enterprise can sacrifice so much for nation. It is illogical and anti-national to think
to hand over the most contributing financial sector to private entrepreneurs including foreign
companies.
The money procured in the form of premium is helping reduced inflationary pressure because so
much of money is withdrawn from circulation and is chantielised for productive sector.
The inflationary gap caused by the difference of money supply and production has been reduced at
both the fronts, i.e., reducing money supply through premium collection and increasing production
through investment.
The investment of LIC has increased from Rs. 372 crore in 1956 to Rs. 65057 crore in 1996, whereas
the premium has increased from Rs. 88.65 crore to Rs. 14182 crore which were 0.2 percent and 2.4
percent respectively of the money in circulation, in the respective years.
The diversified investment policy of LIC has served almost all the industries, all the states and
infrastructure from the drinking water facilities to development of hardcore industries; LIC has
invested for their growth.

The corporate objectives of LIC say. "Meet the various life insurance needs of the Community that
would arise in the changing social and economic environment".
The LIC investment in public sector has been approximately 80 percent of its total investment.
Similarly, the general insurance companies have invested about 65 percent of its total investment in
public sector. It has been varying from 6.3 percent to 73 percent in different subsidiary companies.
The Life Insurance Corporation of India has been contributing in the socio-economic development
through its payment to government.
Government has invested only Rs. 5 crore as capital of LIC but has received Rs. 160.94 crore as
dividend in 1995-96. It is unthinkable ratio of dividend which is 32 times of capital employed.
The tax money given to government is very high amount i.e., more than Rs. 500 crore. Can any
private insurer pay so many taxes to government and government may receive so much high of
dividend rate? Certainly not.
Therefore, the logic of government to denationalise the LIC is irrational and full of unwise step.
Similarly, General Insurance Industry has given more than Rs. 100 crore as income tax and more
than Rs. 800 crore as dividend. Taking the total funds received by life insurance and general
insurance industry together, the government has received more than Rs. 1,600 crore in 1995-96.
If government is going to part with this revenue by throwing the insurance industry to private
entrepreneur's doubts may arise on the rational functioning of the government.
It may be on account of some concrete reasons e.g., government is being run by irrational people,
government does not care for the welfare of society, government is thinking to borrow money from
international agencies rather than mobilising domestic savings. The scope of domestic saving is
considerably high in India.
There is need of honest and sincere attempt to mobilise people's saving for people's welfare.
Government should not adhere on some of the reports on insurance because they have been
prepared on government's liking and people's mood. The reports cannot be relied on considering the
broader and wider interest of the country.
It has been anticipated that the funds required for Ninth Five-Year Plan can be met by insurance
industry alone if the industry is given freehand for operation and investment.
There will not be any need for inviting foreign investment and incurring socio-economic and political
risks. Privatisation of insurance industry is totally out of context, irrational and antinational
decision.
Life insurance business was nationalised with the objective of rendering prompt and efficient
services to policyholders. Consequently, corporative objective, "Involve all people working in the
Corporation to the best of their capability in furthering the interests of the insured public by
providing efficient service with courtesy.
The business per active agent has increased to Rs. 10,63,101 in 1995 from the lowest level of Rs.
31,000 in 1955. The LIC has fulfilled the responsibility of claims payment of which amounted to Rs.
4,532.22 crore on 42 lakh policies in 1995-96 from the lowest figure of Rs. 28.7 crore in 1956.
Outstanding claim which was 50% in 1956 came down to the level of 5.99 % in 1995-96. This shows
that LIC has attempted hard to render prompt and efficient services to take policyholders.

The business of LIC has been constantly increasing. The productivity in terms of new business has
increased from 26 policies in 1957 to 89 policies in 1994-95.
An employee who was required to serve 185 policies in 1957 is serving 539 policies in force in 199495. No one can argue that employee's productivity has declined as has been in other public sector
enterprises.
The case of LIC is totally different from other public sector units which are running on losses and
have been under constant pressure of government. LIC and GIC having the benefits of corporate
character under statutory act of 1956 and 1972 are demonstrating its efficiency.
They improve further if political interference whatever is there is eliminated from the horizon of the
business. Statutory corporations having their autonomy and management techniques can perform
better than any private entrepreneurs or government organisation.
Departmental undertakings are always on the mercy and methods of government. The Indian
Government has vividly demonstrated its corrupt practices during the last five years and cannot be
relied upon for better management of nation and industry.
But statutory corporations being free from direct involvement of government and performing
efficiency in India and helping the society at large which is not possible by individual entrepreneurs
who are always profit minded and least bothered to public welfare and nation-building.

Introduction
The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are
non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart from that,
among the non-life insurers there are six public sector insurers. In addition to these, there is sole national re-insurer, namely,
General Insurance Corporation of India (GIC Re). Other stakeholders in Indian Insurance market include agents (individual
and corporate), brokers, surveyors and third party administrators servicing health insurance claims.
Out of 29 non-life insurance companies, five private sector insurers are registered to underwrite policies exclusively in
health, personal accident and travel insurance segments. They are Star Health and Allied Insurance Company Ltd, Apollo
Munich Health Insurance Company Ltd, Max Bupa Health Insurance Company Ltd, Religare Health Insurance Company Ltd
and Cigna TTK Health Insurance Company Ltd. There are two more specialised insurers belonging to public sector, namely,
Export Credit Guarantee Corporation of India for Credit Insurance and Agriculture Insurance Company Ltd for crop
insurance.

Market Size
During April 2015 to March 2016 period, the life insurance industry recorded a new premium income of Rs 1.38 trillion (US$
20.54 billion), indicating a growth rate of 22.5 per cent. The general insurance industry recorded a 12 per cent growth in
Gross Direct Premium underwritten in April 2016 at Rs 105.25 billion (US$ 1.55 billion).
India's life insurance sector is the biggest in the world with about 360 million policies which are expected to increase at
a Compound Annual Growth Rate (CAGR) of 12-15 per cent over the next five years. The insurance industry plans to hike
penetration levels to five per cent by 2020.
The countrys insurance market is expected to quadruple in size over the next 10 years from its current size of US$ 60
billion. During this period, the life insurance market is slated to cross US$ 160 billion.
The general insurance business in India is currently at Rs 78,000 crore (US$ 11.44 billion) premium per annum industry and
is growing at a healthy rate of 17 per cent.
The Indian insurance market is a huge business opportunity waiting to be harnessed. India currently accounts for less than
1.5 per cent of the worlds total insurance premiums and about 2 per cent of the worlds life insurance premiums despite
being the second most populous nation. The country is the fifteenth largest insurance market in the world in terms of
premium volume, and has the potential to grow exponentially in the coming years.

Investments
The following are some of the major investments and developments in the Indian insurance sector.

The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue redesigned initial public
offering (IPO) guidelines for insurance companies in India, which are to looking to divest equity through the IPO route.

Aviva Plc, the UK-based Insurance company, has acquired an additional 23 per cent stake in Aviva Life Insurance
Company India from the joint venture (JV) partner Dabur Invest Corporation for Rs 940 crore (US$ 141.3 million), thereby
increasing their stake to 49 per cent in the company.

The Insurance sector in India is expected to attract over Rs 12,000 crore (US$ 1.76 billion) in 2016 # as many
foreign companies are expected to raise their stake in private sector insurance joint ventures.

QuEST Global, a pure-play engineering and Research and Development (R&D) services provider, has raised
investment of around Rs 2,396 crore (US$ 351.54 million) from leading global investors Bain Capital, GIC and Advent
International for a minority stake in the company.

Insurance firm AIA Group Ltd has decided to increase its stake in Tata AIA Life Insurance Co Ltd, a joint venture
owned by Tata Sons Ltd and AIA Group from 26 per cent to 49 per cent.

Canada-based Sun Life Financial Inc plans to increase its stake from 26 per cent to 49 per cent in Birla Sun Life
Insurance Co Ltd, a joint venture with Aditya Birla Nuvo Ltd, through buying of shares worth Rs 1,664 crore (US$ 244.14
million).

Nippon Life Insurance, Japans second largest life insurance company, has signed definitive agreements to invest
Rs 2,265 crore (US$ 332.32 million) in order to increase its stake in Reliance Life Insurance from 26 per cent to 49 per
cent.

Bennett Coleman and Co. Ltd (BCCL), the media conglomerate with multiple publications in several languages
across India, is set to buy Religare Enterprises Ltds entire 44 per cent stake in life insurance joint venture Aegon Religare
Life Insurance Co. Ltd. The foreign partner Aegon is set to increase its stake in the joint venture from 26 per cent to 49 per
cent, following governments reform measure allowing the increase in stake holding by foreign companies in the insurance
sector.

GIC Re and 11 other non-life insurers have jointly formed the India Nuclear Insurance Pool with a capacity of Rs
1,500 crore (US$ 220.08 million) and will provide the risk transfer mechanism to the operators and suppliers under the
CLND Act.

State Bank of India has announced that BNP Paribas Cardif is keen to increase its stake in SBI Life Insurance from
26 per cent to 36 per cent. Once the foreign joint venture partner increases its stake to 36 per cent, SBIs stake in SBI Life
will get diluted to 64 per cent.

Government Initiatives
The Government of India has taken a number of initiatives to boost the insurance industry. Some of them are as follows:

The Union Budget of 2016-17 has made the following provisions for the Insurance Sector:

Foreign investment will be allowed through automatic route for up to 49 per cent subject to the guidelines on Indian
management and control, to be verified by the regulators.

Service tax on single premium annuity policies has been reduced from 3.5 per cent to 1.4 per cent of the premium
paid in certain cases.

Government insurance companies to be listed on the exchanges

Service tax on service of life insurance business provided by way of annuity under the National Pension System
regulated by Pension Fund Regulatory and Development Authority (PFRDA) being exempted, with effect from April 01,
2016.

The Insurance Regulatory and Development Authority (IRDA) of India has formed two committees to explore and
suggest ways to promote e-commerce in the sector in order to increase insurance penetration and bring financial inclusion.

IRDA has formulated a draft regulation, IRDAI (Obligations of Insures to Rural and Social Sectors) Regulations,
2015, in pursuance of the amendments brought about under section 32 B of the Insurance Laws (Amendment) Act, 2015.

These regulations impose obligations on insurers towards providing insurance cover to the rural and economically weaker
sections of the population.

The Government of India has launched two insurance schemes as announced in Union Budget 2015-16. The first
is Pradhan Mantri Suraksha Bima Yojana (PMSBY), which is a Personal Accident Insurance Scheme. The second is
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), which is the governments Life Insurance Scheme. Both the schemes
offer basic insurance at minimal rates and can be easily availed of through various government agencies and private sector
outlets.

The Uttar Pradesh government has launched a first of its kind banking and insurance services helpline for farmers
where individuals can lodge their complaints on a toll free number.

The select committee of the Rajya Sabha gave its approval to increase stake of foreign investors to 49 per cent
equity investment in insurance companies.

Government of India has launched an insurance pool to the tune of Rs 1,500 crore (US$ 220.08 million) which is
mandatory under the Civil Liability for Nuclear Damage Act (CLND) in a bid to offset financial burden of foreign nuclear
suppliers.

Foreign Investment Promotion Board (FIPB) has cleared 15 Foreign Direct Investment (FDI) proposals including
large investments in the insurance sector by Nippon Life Insurance, AIA International, Sun Life and Aviva Life leading to a
cumulative investment of Rs 7,262 crore (US$ 1.09 billion).

The Insurance Regulatory and Development Authority of India (IRDAI) has given initial approval to open branches
in India to Switzerland-based Swiss Re, French-based Scor SE , and two Germany-based reinsurers namely, Hannover Re
and Munich Re.

Road Ahead
India's insurable population is anticipated to touch 750 million in 2020, with life expectancy reaching 74 years.
Furthermore, life insurance is projected to comprise 35 per cent of total savings by the end of this decade, as against 26 per
cent in 2009-10.
The future looks promising for the life insurance industry with several changes in regulatory framework which will lead to
further change in the way the industry conducts its business and engages with its customers.
Demographic factors such as growing middle class, young insurable population and growing awareness of the need for
protection and retirement planning will support the growth of Indian life insurance.
Exchange Rate Used: INR 1 = US$ 0.0148 as on July 11, 2016
References: Media Reports, Press Releases, Press Information Bureau, Union Budget 2016-17, Insurance Regulatory and
Development Authority of India (IRDA)
Note: # - as per Assocham Report 2016
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in
the same.

Benefits
Know more about the benefits of becoming an LIC agent
1. Rewarding Career
You will help people realise their dreams by fulfilling their financial goals. The difference you make to
their lives is more rewarding and satisfying than you could ever imagine.
2. A Successful Team
By joining us, you will be a part of the country's finest team of life insurance Agents. In the year 2015,
we contributed 4021 members to the Million Dollar Round Table: a global forum that salutes the
world's most successful Insurance Agents.
3. Attractive Remuneration
We offer one of the best remuneration systems in the industry that not only takes care of your current
earnings, but also guarantees an earning for the future. What's more, you can set your own income

targets with a potential to earn as much as you want for the rest of your life.
4. Independence
As an Agent, you will be a true entrepreneur. You have the freedom to be your own boss: work for
yourself, choose your own clients and make your own money. All of this, without your having to make
any initial capital investment.
5. World-Class Training
We provide you with the best-in-class training systems, since that is what differentiates LIC Agent
from the rest. Even if you don't have previous experience in selling, our multi-dimensional training
programme conducted by our qualified in-house training personnel, will make you a specialist in life
insurance sales.
6. Commitment To Career Agency System
Our commitment to the Career Agency System means that, we support you and your efforts not just
today, but at every stage of your business. We believe in encouraging our Agents to strive towards the
highest levels of success, throughout their careers. In fact, depending on your performance, we also
offer a management career option with the company.
7. Infrastructure Support
We have invested in creating a state-of-the-art infrastructure at each of our Branch Offices. You will
have access to the necessary tools, technology and people support that will enable you to build a
profitable long-term business.
8. Full Range Of Products And Services
You can offer your customers over 50 product combinations of our unique Products and Riders, to help
them meet all their financial goals. In order to give you a greater competitive edge, we are also
continuously working on newer and more innovative products.
9. Sales And Marketing Support
We support our Agents with innovative sales and marketing tools. The Sales, Promotions and
Marketing collaterals that we provide will help you take your business to new heights.
10. Financial Strength
LIC offers you and your customer unmatched financial strength and solidity.

You might also like