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EXECUTIVE SUMMARY

Someone has greatly said that practical knowledge is far better than classroom
teaching. During this project I fully realized this and come to know about the present
real world of Insurance sector . It includes all the activities involved in providing
insurance products to the final customers. I am pleased to know about the consumers’
wants and competitors activities in the real world of Insurance. The subject of my study
is to analyse the present insurance sector and products offered by LIC by applying
various tools like cold calling and through direct interaction with customer’s. I have also
done research on the growth of private life insurance companies.
The report contains first of all brief introduction about the company. Then it contains
the current status of private insurance companies and foreign insurance companies in
India.
I also put forward recommendations of the consumers and conclusions that will
help LIC to provide consumer satisfactory services in the insurance sector
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CHAPTER 1

INTRODUCTION TO INSURANCE
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1.1 INTRODUCTION TO INSURANCE

Insurance may be 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. 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 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.”

The insurance industry in India has come a long way since the time when businesses
were tightly regulated and concentrated in the hands of a few public sector insurers.
Following the passage of the Insurance Regulatory and Development Authority Act in
1999, India abandoned public sector exclusivity in the insurance industry in favor of
market-driven competition. This shift has brought about major changes to the industry.
The inauguration of a new era of insurance development has seen the entry of
international insurers, the proliferation of innovative products and distribution
channels, and the raising of supervisory standards.
By mid-2004, the number of insurers in India had been augmented by the entry of new
private sector players to a total of 28, up from five before liberalization. A range of new
products had been launched to cater to different segments of the market, while
traditional agents were supplemented by other channels including the Internet and
bank branches. These developments were instrumental in propelling business growth,
in real terms, of 19% in life premiums and 11.1% in non-life premiums between 1999
and 2003.
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There are good reasons to expect that the growth momentum can be sustained. In
particular, there is huge untapped potential in various segments of the market. While
the nation is heavily exposed to natural catastrophes, insurance to mitigate the negative
financial consequences of these adverse events is underdeveloped. The same is true for
both pension and health insurance, where insurers can play a critical role in bridging
demand and supply gaps. Major changes in both national economic policies and
insurance regulations will highlight the prospects of these segments going forward.
Insurance or assurance, device for indemnifying or guaranteeing an individual against
loss. Reimbursement is made from a fund to which many individuals exposed to the
same risk have contributed certain specified amounts, called premiums. Payment for an
individual loss, divided among many, does not fall heavily upon the actual loser. The
essence of the contract of insurance, called a policy, is mutuality. The major operations
of an insurance company are underwriting, the determination of which risks the insurer
can take on; and rate making, the decisions regarding necessary prices for such risks.
The underwriter is responsible for guarding against adverse selection, wherein there is
excessive coverage of high risk candidates in proportion to the coverage of low risk
candidates.
In preventing adverse selection, the underwriter must consider physical, psychological,
and moral hazards in relation to applicants. Physical hazards include those dangers
which surround the individual or property, jeopardizing the well-being of the insured.
The amount of the premium is determined by the operation of the law of averages as
calculated by actuaries. By investing premium payments in a wide range of revenue-
producing projects, insurance companies have become major suppliers of capital, and
they rank among the nation's largest institutional investors.
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1.2 DEFINITIONS OF INSURANCE

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. With the help of insurance, large number of people
exposed to a similar risk makes contributions to a common fund out of which the losses
suffered by the unfortunate few, due to accidental events, are made good.

General definition:

In the words of John Magee, “Insurance is a plan by which large number of


people associate themselves and transfer to the shoulders of all, risks that attach to
individuals.”

Fundamental definition:

In the words of D.S. Hansel, “Insurance may be defined as a social device


providing financial compensation for the effects of misfortune, the payment being made
from the accumulated contributions of all parties participating in the scheme.”

Contractual definition:

In the words of justice Tindall, “Insurance is a contract in which a sum of money


is paid to the assured as consideration of insurer’s incurring the risk of paying a large
sum upon a given contingency.”

General Definition:

The general definitions are given by the social scientists & they consider insurance
as a device to protection against risks, or a provision against inevitable contingencies or
a co-operative device of spreading risks. Some of such definitions are given below:
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 In the words of John Magee, ―Insurance is a plan by which large number of


people associate themselves & transfer to the shoulder of all, risks that attach to
individuals.

 In the words of Sir William, ―The collective bearing of risks is insurance.

 In the words of Boone & Kurtz, ―Insurance is a substitution for a small known
loss (the insurance premium) for a large unknown loss, which may or may not
occur.

 In the words of Thomas, ―Insurance is a provision, which a prudent man makes


against for the loss or inevitable contingencies, loss or misfortune.

 In the words of Allen Z. Mayer, ―Insurance is a device for the transfer to an


insurer of certain risks of economic loss that would otherwise come by the
insured.

 In the words of Ghosh & Agarwal, ―Insurance is a co-operative form of


distributing a certain risk over a group of persons who are exposed to it.‖
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1.3 HISTORY OF INSURANCE IN INDIA

In India, insurance has a deep-rooted history. It finds mention in the writings of


Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The
writings talk in terms of pooling of resources that could be re-distributed in times of
calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to
modern day insurance. Ancient Indian history has preserved the earliest traces of
insurance in the form of marine trade loans and carriers’ contracts. Insurance in India
has evolved over time heavily drawing from other countries, England in particular.
1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In
1829, the Madras Equitable had begun transacting life insurance business in the Madras
Presidency. 1870 saw the enactment of the British Insurance Act and in the last three
decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and
Empire of India (1897) were started in the Bombay Residency. This era, however, was
dominated by foreign insurance offices which did good business in India, namely Albert
Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian
offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance


Companies in India. The Indian Life Assurance Companies Act, 1912 was the first
statutory measure to regulate life business. In 1928, the Indian Insurance Companies
Act was enacted to enable the Government to collect statistical information about both
life and non-life business transacted in India by Indian and foreign insurers including
provident insurance societies. In 1938, with a view to protecting the interest of the
Insurance public, the earlier legislation was consolidated and amended by the Insurance
Act, 1938 with comprehensive provisions for effective control over the activities of
insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high.
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There were also allegations of unfair trade practices. The Government of India,
therefore, decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector
and Life Insurance Corporation came into existence in the same year. The LIC absorbed
154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and
foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector
was reopened to the private sector.
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1.4 CHARACTERISTICS OF INSURANCE:

 Sharing of Risks
Insurance is a co-operative device to share the burden of risk, which may fall on
happening of some unforeseen events, such as the death of head of the family, or on
happening of marine perils or loss of by fire.

 Co-operative Device
Insurance is a co-operative form of distributing a certain risk over a group of
persons who are exposed to it (Ghosh & Agarwal). A large number of persons share the
losses arising from a particular risk.

 Evaluation of Risk
For the purpose of ascertaining the insurance premium, the volume of risk is
evaluated, which forms the basis of insurance contract.

 Payment of happening of specified event


On happening of specified event, the insurance company is bound to make
payment to the insured. Happening of the specified event is certain in life insurance, but
in the case of fire, marine or accidental insurance, it is not necessary. In such cases, the
insurer is not liable for payment of indemnity.

 Amount of payment
The amount of payment in indemnity insurance depends on the nature of losses
occurred, subject to a maximum of the sum insured. In life insurance, however, a fixed
amount is paid on the happening of some uncertain event or on the maturity of the
policy.
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 Large number of insured persons


The success of insurance business depends on the large number of persons
insured against similar risk. This will enable the insurer to spread the losses of risk
among large number of persons, thus keeping the premium rate at the minimum.

 Insurance is not a gambling


Insurance is not a gambling. Gambling is illegal, which gives gain to one party
& loss to the other. Insurance is a valid contract to indemnity against losses. Moreover,
insurable interest is present in insurance contracts & it has the element of investment
also.

 Insurance is not charity


Charity pays without consideration but in the case of insurance, premium is
paid by the insured to the insurer in consideration of future payment.

 Protection against risks


Insurance provides protection against risks involved in life, materials &
property. It is a device to avoid or reduce risks

 Spreading of risk
Insurance is a plan, which spread the risks & losses of few people among a
large number of people. John Magee writes, ―Insurance is a plan by which large number
of people associates themselves & transfer to the shoulders of all, risks attached to
individuals.

 Transfer of risk
Insurance is a plan in which the insured transfers his risk on the insurer. This
may be the reason that Mayerson observes, that insurance is a device to transfer some
economic losses to the insurer, and otherwise such losses would have been borne by the
insured themselves.
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 Ascertaining of losses
By taking a life insurance policy, one can ascertain his future losses in terms of
money. This is done by the insurer to determining the rate of premium, which is
calculated on the basis of maximum risks.

 A contract
Insurance is a legal contract between the insurer & insured under which the
insurer promises to compensate the insured financially within the scope of insurance
policy, & the insured promises to pay a fixed rate of premium to the insurer.

 Based upon certain principle


Insurance is a contract based upon certain fundamental principles of insurance,
which includes utmost good faith, insurable interest, contribution, indemnity, cause
proximal, subrogation, etc., which are the basis for successful operation of insurance
plan.

 Utmost Good Faith


Insurance is a contract based on good faith between the parties. Therefore, both
the parties are bound to disclose the important facts affecting to the contract before
each other. Utmost good faith is one of the important principles of insurance.

To conclude, insurance is a device for the transfer of risks from the insured to the
insurers, who agree to it for a consideration (known as premium), & promises that the
specified extent of loss suffered by the insured shall be compensated. It is a legal
contract of a technical nature.
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1.5 FUNCTION OF INSURANCE:

PRIMARY FUNCTIONS –

The primary functions of insurance include the following.

i) Provide Protection
The primary function of insurance is to provide protection against future risk,
accidents and uncertainty. Insurance cannot check the happening of the risk, but can
certainly provide for the losses of risk. Professor Hopkins observes "Insurance is a
protection against economic loss, by sharing the risk with others.”

ii) Collective bearing of risk


Insurance is a device to share the financial loss of few among many others.
Dinsdale opines, insurance is a mean by which few losses are shared among longer
people. Similarly, William Bevridge observes, "The collective bearing of risks is
insurance." All the insured contribute the premiums towards a fund and out of which
the persons exposed to a particular risk is paid.

iii) Assessment of risk


Insurance determines the probable volume of risk by evaluating various factors
that give rise to risk. Risk is the basis for determining the premium rate also.

iv) Provide certainty


Insurance is a device which helps to change from uncertainty to uncertainty. This
may the reason that John Magee writes that the function of insurance is to provide
certainty. Similarly, Riegel and-Miller observe, "Insurance is device whereby the
uncertain risks may be made more certain".
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SECONDARY FUNCTIONS

i) Prevention of losses

Insurance cautions individuals and businessmen to adopt suitable device to


prevent unfortunate consequences of risk by observing safety instructions; installation
of automatic sparkler or alarm systems, etc. Prevention of losses causes lesser payment
to the assured by the insurer and this will encourage for more savings by way of
premium. Reduced rate of premiums stimulate for more business and better protection
to the insured.

ii) Small capital to cover larger risks


Dinsdale observes, insurance relieves the businessmen from security
investments, by paying small amount of premium against larger risks and uncertainty.

iii) Contributes towards the development of larger industries


Insurance provides development opportunity to those larger industries having
more risks in their setting up. Even the financial institutions may be prepared to give
credit to sick industrial units which have insured their assets including plant and
machinery.

OTHER FUNCTIONS

 Means of savings and investment: insurance serves as savings and investment,


insurance is a compulsory way of savings and it restricts the unnecessary
expenses by the insured’s For the purpose of availing income-tax exemptions
also, people invest in insurance.
 Source of earning foreign exchange: Insurance is an international business. The
country can earn foreign exchange ^ by way of issue of marine insurance
policies.
 Promotes exports insurance makes the foreign trade risk free with the help of
different types of policies under marine insurance cover.
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CHAPTER 2

ROLE OF INSURANCE SECTOR IN INDIA


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ROLE OF INSURANCE SECTOR IN INDIA

PROTECTIVE ROLE

Insurance has been playing protective role towards the development of industry
and commercial institutions. The major protective measures have been:

i) Protection from risks arising out of natural calamities


Insurance has also been playing important role in protecting the industry and
commercial activities from natural calamities like fire, marine losses, floods, earth
quakes, cyclones etc.

ii) Protection from the risks caused by human beings


Insurance provides protection against risks caused by human beings such as
strikes by workers, their negligence in carrying out work, theft and decoity, evil
disturbances and many other such acts. In addition to the issue of policies against such
causes, insurance also issues policies to protect the industry and commercial
institutions from the loss of money in transit.

iii) Protection against statutory liabilities


Insurance also plays the role of protecting the industry and commerce in
fulfilling statutory liabilities towards the workers, arising out of industrial accidents.
The employer is bound to compensate such workers under the provision of Workers'
Compensation Act. In case the employer obtains an accidental policy in favour of
employees; the money to be paid as compensation to the accident victims, can be
chimed from the insurance company.
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iv) Financial security


Insurance provides financial security also to industry and commerce. Exports
of goods to other countries by sea, storage of goods in safe godowns and various other
kinds of financial losses are secured by insurance policies.

v) Protection from loss of profits


Insurance also has extended its role of prot6cting different industrial and
commercial activities, it provides protection against losses arising from shops or
factories. It also undertakes to indemnity the loss of profits from business functions.
This way, the loss of profits and property / both are protected.

vi) Protection of debts


A trader can protect himself by taking appropriate policy against the credit sales or
property kept on security against goods or property. Thus, the insurance protests the
trader even in case the debtor dies or of damages to the goods.

vii) Protection to the business institution due to sudden death of the me key man
The successful operation and development of a business largely depends on its
directors, managers and administrative personnel. Sudden and untimely death of
such person may badly affect the functioning of the business and many problems
may also arise in day-to-day functioning of business. Insurance plays important role
by insuring the life of key man in the business so that the future can be protected
safely from uncertainties.
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viii) Provides stability in commercial and industrial activities


Insurance companies extend various kinds of assistance to business enterprise to run
the business regularly and continuously. It plays important role in partnership business
by insuring the life of partners so that in case of death of any partner, the claim received
from the insurance company can be used for meeting payment to the dependents of
deceased partner.

PROMOTIONAL ROLE OF INSURANCE


Insurance plays important role in setting up industrial and commercial
units; by way of capital formation, new investment, industrial entrepreneurship,
under-writing of shares and investment in capital market. In addition to
protective measures, it plays promotional role also, which are briefly described
below:

i) Extension of credit facilities


Insurance extends credits to industrial and commercial institutions. An
entrepreneur can get insurance of unit, plant and machinery, or permanent assets
purchased by him and get them mortgaged with the financial institutions for getting
credit.

ii) Facilities industrialization and commercialization


Insurance contributes for the development of various commercial activities like
buying-selling, transportation, communication, warehousing, packaging, advertising
and publicity, and agricultural marketing etc. It is due to the insurance facility that many
utility serves are created and the business solves various problems arising out of
business conducts.
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iii) Increases business and industrial efficiency


The efficient management of industrial and commercial activities become
possible due reductions in business risks. Insurance provides protection from various
risks and thus it increases the business efficiency.

iv) Investment in shares and debentures

Insurance companies extends its support for the development and expansion
industrial and commercial activities by investing in shares and debentures issued by the
industrial units.

v) Contribution towards the development of basic industries


Insurance has contributed much towards the development and expansion of
basic industries like iron and steel cement, engineering, chemicals, petro-chemicals,
electric goods, fertilizers, etc. by investing in shares and debentures.

vi) Contribution towards fulfillment of social and statutory obligations

Insurance institutions in the country also have been contributing much in


fulfilment of social and statutory obligations by contributing well in social welfare
schemes operated by industrial establishments, social security, schemes, workers
compensation plan, payment of gratuity etc.

vii) Contribution towards development of international trade

The various policies issued by marine insurance companies help for the
development of international trade by protecting the exporters/ importers from marine
losses and risks. This role of insurance companies has been helpful in earning more
foreign exchange by increased participation by traders in international trader
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viii) Extension of export credit


Export Credit and Guarantee Corporation (ECGC) extends export credit to the
exporters and in cases where the importers commit defaults in making payment to the
exporter, the ECGC compensate the exporter through its policy issued for this purpose.

ix) Increase competing ability among small and medium-scale units

Insurance acts as a source among the small and medium scale industrial units to
compete with larger industrial units. Large-scale industries can bear the expenses for
protection against risks and uncertainties by getting insurance against such losses.
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CHAPTER 3

INTRODUCTION OF LIFE INSURANCE

CORPORATION OF INDIA
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3.1 INTRODUCTION TO LIC

Life Insurance in its modern form came to India from England in the year 1818.
Oriental Life Insurance Company stated by Europeans in Calcutta was the first life
insurance company on Indian Soil. All the insurance companies established during that
period were brought up with the purpose of looking after the needs of European
community and Indian natives were not being insured by these companies. However,
later with the efforts of eminent people like Babu Muttylal Seal, the foreign life
insurance companies started insuring Indian lives. But Indian lives were being treated
as sub-standard lives and heavy extra premiums were being changed on them. Bombay
Mutual Life Assurance Society heralded the birth of first Indian life insurance company
in the year 1870, and covered Indian lives at normal rates. Starting as Indian enterprise
with highly patriotic motives, insurance companies came Tito existence to carry the
message of insurance and social security through insurance to various sectors of
society. Bharat Insurance Company (1896) was also one of such companies inspired by
nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance
companies. The United India in Madras, National Indian and National Insurance in
Calcutta and the Hindustan Co-operative Insurance Company took its birth in one of the
rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The
Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some
of the companies established during the same period. Prior to 1912. India had no
legislation to regulate insurance business. In the year 1912, the Life Insurance
Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies
Act, 1912 made it necessary that the premium rate tables and periodical valuations of
companies should be certified by an actuary. But the act discriminated between foreign
and Indian companies on many accounts, putting the Indian companies at a
disadvantage.
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The first two decades of the twentieth century saw lot of growth in insurance
business. From 44 companies with total business-in force as Rs. 22.44 crore, it rose to
176 companies with total business-in-force as Rs. 298 crore in 1938. During the
mushrooming of insurance companies many financially unsound concerns were also
floated which failed miserably. The Insurance Act 1938 was the first legislation
governing not only life insurance but also non-life insurance to provide strict state
control over insurance business. The demand for nationalization of life insurance
industry was made repeatedly in the past but it gathered momentum in 1944 when a
bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.
However, it was much later on the 19th of January, 1956, that life insurance in India was
nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75
provident were operating in India at the time of nationalization, nationalization was
accomplished in two stages; initially the management of the companies was taken over
by means of an Ordinance, and later, the ownership too by means of a comprehensive
bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of
June 1956, and the Life Insurance Corporation of India was created on 1st September,
1956, with the objective of spreading life insurance much more widely and in particular
to the rural areas with a view to reach all insurable persons in the country, providing
them adequate financial cover at a reasonable cost.

LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from
its corporate office in the year 1956. 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.
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Today LIC functions with 2048 fully computerized branch offices, 100 divisional
offices, 7 zonal offices and the corporate office. LIC’s Wide Area 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-lint 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 Centres 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.

LIC continues to be the dominant life insurer even in the liberalized scenario of
Indian insurance and is moving fast on a new growth trajectory surpassing its own past
records. LIC has issued over one crore policies during the current year. It has crossed
the milestone of issuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthy
growth rate of 16.67% over the corresponding period of the previous year.

From then to now, LIC has crossed many milestones and has set unprecedented
performance records in various aspects of life insurance business. The same motives
which inspired our forefathers to bring insurance into existence in this country inspire
us at LIC to take this message of protection to light the lamps of security in as many
homes as possible and to help the people in providing security to their families.
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3.2 MILESTONES

Some of the important milestones in the life insurance business in India are:

1818: Oriental Life Insurance Company, the first life insurance company on Indian soil
started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company
started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate
the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies are taken over by the
central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act,
1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to
the Triton Insurance Company Ltd., the first general insurance company established in
the year 1850 in Calcutta by the British.
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3.3 TYPES OF LIFE INSURANCE:

There are various types of policies and schemes prepared to suit the need of different
individual. You can avail the one that satisfy your budget and need. Life insurance can
be broadly divided into 3 types:

 Term life insurance


 Whole life insurance
 Universal life insurance

What is Term Life Insurance?

In this type of life insurance, financial coverage is provided for a certain period of time
according to the terms of the policy. When the term period gets over, the policy holder
can either end the policy or continue it by paying annual premiums.

Term life insurance does not provide permanent coverage but is good for those who
want temporary protection on a limited budget. If you are thinking of availing a short
term life insurance policy to pay off loans, term life insurance policy is the right option
for you. It can be renewed according to the policy holders wish and need.

What is Whole Life Insurance?

In this type of life insurance, the insured is provided with permanent financial
protection. It is a long term insurance plan where the policy holder needs to pay
premiums annually. There are various types of whole life insurance that individuals can
avail in accordance to their needs such as Non-participating, Participating,
Indeterminate premium, Economic, Limited Pay, Single Premium and Interest sensitive.
But all life insurance companies may not offer all the types of whole insurance policies
stated above.
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What is Universal Life Insurance?

This is a permanent life insurance plan which has flexible terms. It allows some of the
benefits such as death benefits, saving benefits to be reviewed and changed according to
the policy holder�s need. In this policy, the insured enjoys not only benefits of term
life insurance but also cash value (premiums that are above the cost insurance are
credited as cash value). You can choose from the 3 types of universal life insurances, i.e.
Single premium, fixed premium and flexible premium, in accordance to your
requirement.

Single premium universal life insurance: In single premium universal life insurance,
the policy holder pays a big premium amount at the beginning of the policy. The policy
remains active as long as the cost of insurance (COI) is covered by the initially paid
amount.

Fixed premium universal life insurance: In fixed premium universal life insurance,
the policy holder makes monthly or yearly payments of fixed amount for a certain
period of time.

Flexible premium universal life insurance: In this option of universal life insurance,
the policy holder can pay monthly premiums of his choice as long as the minimum
payment amount is covered.

Life insurance is therefore an essential step towards safeguarding the future of your
family. People should understand how these life insurance policies work and avail the
one that seems suitable to their needs. Take the help of a good insurance agent who will
help you with details of the policies available.
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3.4 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’ 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 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 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 capability in
furthering the interests of the insured public by providing efficient service with
courtesy.

 Promote amongst all agent and employees of the corporation a sense of


participation, pride and job towards achievement of corporate objective.
Role of LIC In Insurance Industry | 28

CHAPTER 4

ROLE OF LIC
Role of LIC In Insurance Industry | 29

4.1 ROLE OF LIC

The insurance industry recorded a booming growth of 35% in premium income


during2004-05 with the 13 private sector players walking away with. An impressive
129%while the Life Insurance Corporation of India recorded a 21% growth. Thus the
market share of state behemoths dropped to 78% in 2004 05 from 87% a year ago.
According to ASSOCHAM Eco Pulse (AEP) Study, the industry premium increased to
Rs253.42bn in 2004-05 from Rs187.1bn in 2003-04. The LIC total premium for the year
2004-05 amounted to Rs197.85bn as against the Rs162.84bn during previousyear. The
figures for the first two months of the fiscal 2005-06 also speak of the growing share of
the private insurers.

The share of LIC for this period has further come down to 75%, while the private
players have grabbed over 24% share. “With the huge potential the market has, the
Government should, more seriously look into increasing the FDI cap in the sector" said
Mahendra K. Sanghi, ASSOCHAM President. During April-June 2005, the largest private
company ICICI Prudential has increased its share from 6.25% in 2004-05 to 7.68% in
current fiscal. The opening up of the sector has given some of the most innovative
products like the customized insurance policies and now the unit linked policies that
have gained much of customer attention. The sector has huge potential and certain
other new and innovative areas can also be looked into for enhancing market share and
premium income, said Sanghi.

HDFC is next in the row with 2.91% market share which has increased from
1.92%last fiscal followed by TATA AIG which now shares 2% of the market from
1.18%last fiscal. Birla Sun life's share has dropped from 2.45% during FY'05 to 1.76% in
first two months of FY'06. SBI life comes next with 1. 72% share and has in fact dropped
a few percent points from last year. Max New York life and Aviva Life Insurance have
captured more than 1% share each from less than 1% share during FY'05.
Role of LIC In Insurance Industry | 30

Others like ING, AMP Sanmar, Met Life and Sahara India have less than 1 %
share. The detail of the market share of life insurance companies is attached. The
market share of the private players has doubled every year from 5.6% in 2002-03 to,
12% in2003-04 and close to 22% in 2004-05.The state run insurance company has the
biggest advantage of its huge network which the company can use to penetrate into
rural market that is still lying untapped. Another option with the life insurance
companies to capture more and more market share could be product innovation and
constantly developing an insurance product in order to meet the ever-changing
requirements of the customer. Quality customer service and education can be another
area where a company can differentiate itself 48 from other companies.
Role of LIC In Insurance Industry | 31

4.2 CURRENT STANDING OF LIFE INSURANCE


COMPANIES IN URBAN SECTOR.

Life insurance is possibly the most- retail of all financial services, and is required
by people of all segments and in all locations. At a broad level, ICICI Prudential aims to
secure the families of the middle and upper class working people in urban India. To this
end, they have pursued a pan-India distribution strategy and backed it up with arrange
of products that meets the needs of a wide range of people, be they from rural or urban
areas. Today, they have branches in 74 locations and rural presence in more than 15
states. Certainly, the majority of the business still comes from urban areas such as
metros and mini-metros. However, they have seen rural business grow significantly and
expect it to continue making greater contribution in the years to come.
Role of LIC In Insurance Industry | 32

4.3 NETWORK OF LIC

All Life Insurance Corporation branches in the country would be interconnected


under Metro Area Network (MAN) inaugurated here on Thursday.
Speaking at the function, K Vaidyalingam, LIC southern zonal manager, said about 1500
branches would be getting covered under MAN in which the premium amount of the
policy holder could be remitted in any branch. Besides, the policy holder gets his status
report, policy position, revival and quotation from the network. In every one hour the
system got upgraded, he said.
In southern region there are about 10 lakh new policy holders with a business of Rs
6500 crore. About settlement of claims, 92 per cent of policies were settled on or before
maturity, he said, adding, LIC was in a better position and 100 per cent connectivity was
taking place.
Kottayam stood third in premium collection during the period between April to August
2002, the first being Kozhikode and Thiruvananthapuram in second position in
southern region.
The premium amount collected in 2001 was Rs.74,000 crore through 2.32 crore new
policies by 8.2 lakh agents. LIC has introduced a new group insurance scheme for
Corporation Bank deposit holders.
Role of LIC In Insurance Industry | 33

4.4 CURRENT STATUS

Over its existence of around 50 years, Life Insurance Corporation of India, which
commanded a monopoly of soliciting and selling life insurance in India, created huge
surpluses, and contributed around 7 % of India's GDP in 2006.

The Corporation, which started its business with around 300 offices, 5.6 million policies
and a corpus of INR 459 million, has grown to 2,048 offices servicing around 180
million policies and a corpus of over INR 3.4 trillion.

The organization now comprises 2048 branches, 100 divisional offices and 8 zonal
offices, and employs over 1 million agents. It also operates in 12 other countries,
primarily to cater to the needs of Non Resident Indians.

With the change in the India's economic philosophy from the early 1990s, and the
subsequent relaxation of state control over several sectors of the economy, the
monopolistic position of the Life Insurance Corporation of India was diluted, and it has
had to compete with a number of other corporate entities, Indian as well as
transnational Life Insurance brands.

In the financial year 2006-07 Life Insurance Corporation of India's number of policy
holders are said to have crossed a whopping 200 million (fourth in terms of population
of the countries of the world)
Role of LIC In Insurance Industry | 34

4.5 LIC THE BEST-KNOWN INDIAN BRAND:


CHIDAMBARAM

FROM STRENGTH TO STRENGTH: Union Finance Minister P. Chidambaram


launching LIC’s web portal in Chennai on Tuesday. Others from left are D.K.
Mehotra, Managing Director, LIC, and A.K. Shukla, Chairman. — Photo: Shaju John
Role of LIC In Insurance Industry | 35

CHENNAI: Describing Life Insurance Corporation of India as the best-known Indian


brand, Union Finance Minister P. Chidambaram, said on Tuesday that even after the
opening up of the insurance sector to private firms, the Corporation remained the
market leader.

Launching LIC's e-portal here, he said the Corporation "supported us (government)


when we opened up insurance because it was confident of doing better in a competitive
environment. LIC continues to be the market leader with 88 per cent market share of
new policies and 78 per cent of premium. It is clearly recognised as the market leader."

The e-portal (licindia.com) will provide information on policy status, bonus, premium
payment, loans and change of address. It will facilitate online payment of premium and
has details of the doctors and agents. It also has a branch locator and `maturity alert'
facility. The objective is to provide world-class service.

Noting that the State-owned Corporation utilised information technology in its


relentless effort to remain the leader, Mr. Chidambaram said: "My goal is to make LIC a
world class insurance company. It is nearly world class now." All 2,048 branches of LIC,
which had been adjudged the best user of IT by NASSCOM, were fully automated.
Barring ten, all the branches were networked.

Mr. Chidambaram said the e-portal was another example of LIC's constant innovation
using information technology. Some of the multi-interfaces it offered to customers
included call centres, IVRS, SMS and satellite branches.
Role of LIC In Insurance Industry | 36

4.6 WHY LIC IS TRUSTED BRAND OF INDIA?

1) As a Govt of India owned Company, LIC is 51 + years old in the field of life
insurance and money management. LIC's Life Fund size as on day is more than
Rs 5 Lakh Thousand Crores.
2) Any LIC policyholder or the nominee will vouch for the best claims settlement
from LIC. Perhaps, this is the only institution where you as a policyholder are
virtually chased till such time your claim cheques is handed over to you!
3) LIC has won `NDTV Profit Leadership Award 2007 under Life Insurance
Category', `Outlook Money Award 2007 as the best Life Insurer', `CNBC Awaaz
Consumer Award 2007 as the best Life Insurance Company', `Golden Peacock
Award for excellence in Corporate Governance 2007', `Web 18 Genius of the Web
Award 2007 and many more'.
4) LIC adjudged No.1 Trusted Service Brand for the 4th successive year by ET Brand
Equity Survey.
5) LIC has been adjudged Superbrand India for 2004-06 and Reader's Digest
`Trusted Brand' Asia 2007.
6) This is the only corporation that is catering to more than 190 million satisfied
policyholders in India and abroad.
7) This is one of the very few institutions that pays ex-gratia interest on pending
maturity claims!
8) More than 2050 LIC branches all over India are connected together to serve you.
You can pay your premium anywhere in the country.
9) During its long existence, LIC has kept on updating its portfolio by bringing in
new plans depending on public requirement. More than 50 of them are most
popular and can be customized to meet any of your requirements. LIC ULIPs
have become extremely popular due to the returns they offer. Money Plus- latest
LIC Unit Linked Plan is a case in point.
Role of LIC In Insurance Industry | 37

10) All LIC Plans come with Sovereign Guarantee i.e., Govt of India Guarantee
regarding repayment. Infact, as of now, only LIC plans enjoy this Govt Guarantee.
Beneficiary for this Sovereign Guarantee is you and you alone as the
policyholder/ would-be policyholder.
11) All LIC plans are characterized by low premium, high life insurance
coverage and a vast package of benefits offered by them. Add to this package,
section 80C benefit and section 10(10D) benefit on the maturity proceeds, you
will find investment on LIC plans one of the most coveted investment options
available to you.
12) Premium paid under Key-Man Insurance plan is a recognized business
expense under section 37(I) of the Income-Tax Act. For companies making
profits, this is a very good incentive indeed.
13) Through Employer-Employee Insurance scheme, you can recognize the
worth of your most valuable employees whose absence you can ill afford to lose.
14) Entire contribution to LIC Group Gratuity Scheme is a recognized business
expense in the hands of the employer. In addition, through this scheme, the
employer can transfer his gratuity liability to the corporation and fund the same
under cash accumulation scheme. The most popular among all the companies.
15) LIC is declaring quite an impressive bonus (profits) on all its with-profits
policies every year. Extra attraction under LIC Bonus is (a) it is calculated every
year on the insured amount and not on the premium paid and (b) entire bonus
received along with insured amount either by you on maturity of your policy(ies)
or by your nominee in your absence during the currency of your policy(ies) is
free from income-tax under section 10(10D) of the Income-tax Act.
16) On most of the LIC plans, you can borrow to take care of your immediate
monetary requirements. None of the policy benefits get affected as a result of
borrowal. Infact, policy loans offer one of the most attractive investment
opportunities.
17) You can pay your premium 3 years in advance at 5% discount. Chief
attractions of this advance payment of premium are (a) there is no possibility of
your overlooking your premium payment and getting your policy(ies) lapsed
wherever you are in the world and (b) you will be earning 5% tax-free interest
Role of LIC In Insurance Industry | 38

on the unutilized portion of the amount left with LIC after apportioning the
regular instalment.
18) Most of the LIC plans come with Riders to take care of Total and
Permanent Disablement due to Accident and some of the most dread diseases
that may result in loss of income.
19) LIC pension plans that guarantee your life pension are extremely popular.
You can park your hard earned money safely with the corporation and enjoy
pension as long as you are alive.

Due to these reasons and lot more, LIC should be your obvious choice for all your
life insurance requirements.
Role of LIC In Insurance Industry | 39

CHAPTER 5

ROLE OF LIC OF INDIA IN INTERNATIONAL MARKET


Role of LIC In Insurance Industry | 40

5.1 ROLE OF LIC IN INTERNATIONAL MARKET

Government has allowed 26% foreign equity participation in the insurance


sector. This has its limitations. While most foreign insurers planning to start their
services in India were not pleased by this condition, they reluctantly agreed that this
was expected in an opening economy and this will not change their outlook for India.
After all no insurance company can afford to ignore a market of 1bn people. But the fact
remains those they:
• Cannot appoint majority directors on the company board;
• Cannot have say in the day to day workings of the company;
• Can Affect Only Special Resolutions.

This cap, however, will have a great impact on the Indian counterpart to raise
74% of the funds in their joint venture. To add to this if Indian partners like State bank
of India, with over 9000 branches nationwide, will demand premium for their existing
distribution network, we will see the foreign insurance companies demand
hefty premiums for bringing in their global expertise and brand. Mr. Vaidya, Chairman
of SBI, has recently stated that all it is looking for is a good and reliable partner and
thequestion of a hefty premium to be charged to its foreign partner is not significant.
The monolith has finally come to business senses foreign companies are unhappy even
about laws pertaining to repatriation of funds. The Stipulated investment criteria is also
something that all players in the sector, be it Indian or foreign, are closing watching. The
foreign players are essentially looking to tap their" global expertise in the variety
markets and use that know-how to work in the Indian scenario. Designing of products,
information systems, technical expertise, manpower planning etc. is what one expects
the foreign players to have a say in
Any venture of the joint kinds needs to be between equals. If this is not there then there
is every chance that a partner in the venture will feel increasingly uncomfortable and
would be looking to call the joint venture off.
Role of LIC In Insurance Industry | 41

5.2 INTERNATIONAL OPERATIONS/ASSOCIATES

LIC has always acknowledged the need to expand. Our expanding efforts have
been consistent and are evident though our associations given below for your
reference.

INTERNATIONAL OPERATIONS

 LIC Fiji
 LIC Mauritius
 LIC United Kingdom
 LIC (International) B.S.C (C), Bahrain
 LIC (Nepal) Ltd
 LIC (Lanka) Ltd
 Saudi Indian Company for Co-op. Insurance, KSA.
 LIC Mauritius Offshore Ltd.
 LIC Co-ordinating Office in India

ASSOCIATES

 LIC Housing Finance Ltd.

 LICHLF Care Homes Ltd.

 LIC Mutual Fund AMC Ltd.


Role of LIC In Insurance Industry | 42

SUBSIDIARIES

LIC owns the following subsidiaries:

 Life Insurance Corporation of India International: This is a joint venture


offshore company promoted by LIC which commenced operations in July, 1989
with the objectives of offering US$ denominated policies to cater to the insurance
needs of NRIs and providing insurance services to holders of LIC policies
currently residing in the Gulf. LIC International operates in all GCC countries.

 LIC Nepal: A joint venture company formed in 2001 with the Vishal Group of
Industries, Nepal.

LIC Lanka: A joint venture company formed in 2003 with the Bartleet Group of
Companies, Sri Lanka
Role of LIC In Insurance Industry | 43

7.2 RECOMMENDATIONS

In the modernized well advanced hi-tech approach to the customer every


possible facilities and effort to build up the confidence of the rising policy holders
towards. Insurance companies, to complete one another nothing is left to recommend.
But some recommendations that are intensely felt and highly required for insures to
sustain in the market.
These are as follows:
a) More and more transparency should be ascertained between insurers and policy
holders.
b) Particularly, in the emerging boom in the insurance company, every insurance
company should be customer cantered, and well versed in the handling of problem and
grievances of the policy holders
c) Each and Every product launched by the Insurance company should be in favour of
increasing need of policy holders. IRDA should be more and more responsible to the
insurance sector by determining some standard. It should be mandatory to every
insurer to make more and more responsible and responsive to the policy holders so that
comprehensive understanding may be developed among policy holders. It may be
beneficial on both sides.
Role of LIC In Insurance Industry | 44

7.3 CONCLUSION

After overhauling the all situation that boosted a number of Pvt. Companies
associated with multinational in the Insurance Sector to give befitting competition to
the established behemoth LIC in public sector, we come at the conclusion that :
1) There is very tough competition among the private insurance companies on the level
of new trend of advertising to lull a major part of Customers.
2) LIC is not left behind in the present race of advertisement.
3) The entry of the Pvt. Players in the Insurance Sector has expanded the product
segment to meet the different level of the requirement of the customers. It has brought
about greater choice to the customers.
4) Private insurers have restricted reach to the customers
5) LIC has vast market and very firm grip on its traditional customers and monopoly of
life insurance products.
6) Bank assurance - that allows life insurers to leverage on the risk product through
bank network, was adopted by private players.

But LIC was also not left behind as picking up majority stake in the corporation
Bank and large equity stake in the Oriental Bank of Commerce. IRDA is also playing very
comprehensive role by regulating norms mandating to private players in this sector,
that increases the confidence level of the customers to the private players.

After Finding’s we can see about LIC features and his The tendency to take the
expedient approach and focus on the far right of the LIC spectrum, Peacetime
Contingency Operations and conduct training as usual, while briefing that the LIC block
has been checked, will lead us to a possibly fatal false sense of security. The probability
of becoming involved in a LIC operation is high. The potential to attract international
attention, even with limited forces, is also great. Units have demonstrated that with a
balanced training focus and proper preparation, many pitfalls outlined above can be
avoided.
Role of LIC In Insurance Industry | 45

LIC is not conventional warfare. This is critical for the counterinsurgent to


understand. The insurgent’s violent and coercive strategy is applied so as to achieve
political, civil, military and psychological results. Hence, the counterinsurgent must
counter all of these strategic elements individually. In addition, the target of the
insurgent’s violence and coercion is the population. This is because the population is the
centre of gravity in LIC.

Therefore the counterinsurgent must also focus on the population to be


successful. In terms of military principles in counterinsurgency, doctrinal precision,
professionalism, independence, initiative, force precision, restraint, combined arms,
precision engagement, joint force, effective population based intelligence, integrated
communications, a civil affairs approach and high levels of training are critical.
Role of LIC In Insurance Industry | 46

BIBLIOGRAPHY

 www.bloomberg.com

 www.moneycontrol.com

 www.allbankingsolution.com

 www.rbi.org