LIC an invincible organization in India

LIC (Life Insurance Corporation of India) is a state-owned insurance company, with it’s
headquarter located in Mumbai. This is a big company with a huge, estimated asset value of
around US$ 240 billion. As of 2013, it showed a highest sale of insurance policies, which is
around 367.82 lakh1. Since the inception of the LIC (Life Insurance Corporation of India), in
1st September 1956, it has gained a considerable name and fame, because of the hard-work of
its employees and their dedication for their organization. The growth of this Organization is
highly remarkable and mind-boggling. The Ideas of the Economists have played a significant
role, in shaping the LIC into an invincible organization, in the insurance sector in India. Let’s
have an in-depth look into the growth of the LIC and the implementation of ideas of the
Economists which helped shaping the Organization.

The growth of the LIC, by the ideas of the economists have been classified into different
stages

1. Nationalisation and Establishment of the LIC

2. Expansion and the hiring of the employees

3. Improvising the working capital of the Organization

4. Product Development strategies and Marketing Strategies

5. Impact of Economic Reforms and Liberalization of the Organization

6. Increase of investments by LIC

Nationalization and Establishment of the Organization:

Before the 1956, there were numerous occurrences of fraudulent activities of the Private
Insurance Companies in India. There was about 245 private life insurance companies and also
other service providers in the same life insurance domain. Among the 245 private companies,
there were 154 life insurance companies, 16 foreign companies and 75 provident
companies. The Indian government started tightening its grip over these frauds of the private
insurance companies. As a result of that, on 19th June 1956, to eradicate the frauds by the
private insurance companies in India, the parliament of India has proposed Life Insurance of
India Act, 1956; which unified all the major insurance companies in India under one common
roof and be named as “Life Insurance Corporation of India”.

Expansion and the hiring of the employees:

The economists in the LIC have devised a plan believing that when there is an increase in the
number of employees and also the operating locations of the organization, there is a visible
improvement in the revenue of the company. So they started expanding and also hired huge
number of employees for the company and in return, it has started giving the expected results.
The economists weighed the Pros and cons of Expanding the organization, which are given
below:

Pros:
 Can lead to hiring new and qualified persons
 Exposing business to wider audience
 To get waivers from government for relocating to certain areas
 Can result in the increase in the market share

Cons:
 can lead to shortage of cash
 may end up in loss of control over the business
 Increased payments for the staffs
 more capital is needed
The Financial advisers feel that “The more the manpower, more the Revenue” and it seems to
be the agenda for the expansion of the LIC of India, which is followed to make effective
profits. And expansion of the organization correlates with the increase in the number of
employees

At first the LIC has a small number of Units or offices and so its revenue is also limited.

Period Offices Policies Asset value

1959 300 5.7million 92 million (as per
1959 exchange rate
of INR)
End of 20th century 250000 350 million 120 billion

We can notice that there is a significant difference between the above mentioned tables. That
is, when the expansion shoots up, it results in the significant increase of the revenue of the
organization.

This decision of hiring of employees needs a proper channelling and guidance. For example,
the new employees need a proper training, communication, guidance and support from the
managers, and they should be well-equipped with, all the necessary talents that their job role
seeks from them.

So, in order to achieve the 100% percent success in their plan, the managers in the
organization have to be trained in a way, that they have understand the effectiveness and
importance of the expansion of the organization and the hiring of new employees into the
organization. This would help achieve the maximum output and good revenue out of it.
Currently, the number of employees as on 31st march 2014 taking part in the organization is
presented in the table below:

Category Number Of Employees

Class I Officers 31,420
Class II Officers 26,621
Class III & IV employees 62,347
Agents 11,32,677
Total 1253065

Improvising the working capital of the Organization:

The next major plan that the economists devised was Improvising the Working capital of LIC
of India. It is an important funding that a company needs for its day to day operations. And it
is important for any organization for accounting their working capital in order to improve
their revenue. The simple formula to calculate the working capital of an organization is given
below:

Working capital= current assets of the organization– current

liabilities of the Organization

There are few pros and cons of the high working capital are given below

Pros:
- Enables you to satisfy your customers’ needs
- Expand your Business
- Enables to invest in new business
- It provides fund when the company needs extra cash

Cons:
- Limits the success of the organization
- More of working capital reveals that the business is not well
- Delays the payment to the customers/suppliers etc
- Sometimes results in heavy loss if the not properly channelled
- It may affect the health of the business
- The investors may see the organization as an unattractive destination.
The table below shows the increase in the Working capital of LIC for the years 2000-2010
respectively:

Year Working Capital Percentage of Growth

(in Cr)
2000-2001 3706.56 100
2001-2002 4260.40 114.94
2002-2003 4571.76 123.34
2003-2004 5186.50 139.93
2004-2005 6241.26 168.38
2005-2006 6041.55 162.99
2006-2007 7085.84 191.17
2007-2008 8309.32 224.18
2008-2009 9064.29 244.55
2009-2010 12245.82 330.38
Source: IRDA

The graphical representation given below shows the growth of Working Capital of LIC of
India.

Source:IRDA

The graphical representation of the growth of the working capital shows a gradual increase in
their numbers from the years 2000-2010. There are few troughs in the graph during 2005-
2006, but that do not affect the business prospects of the LIC of India.
The table below shows the growth of business of LIC for the years 2000-2010 respectively.
Year Business Growth Percentage of Growth
2000-01 196.65 100
2001-02 222.99 113.39
2002-03 242.79 123.46
2003-04 269.68 137.14
2004-05 239.78 121.93
2005-06 315.91 160.65
2006-07 382.29 194.40
2007-08 376.13 191.27
2008-09 359.13 182.62
2009-10 388.00 197.30
Source: IRDA

When comparing the above two tables, it is evident that there is a substantial growth of
business, corresponding to the increase in the working capital of the Company. We can notice
that the percentage of growth of business parallels with the percentage of Growth of the
working capital. For Example: In 2002-2003 percentage of growth of business capital is
114.94, while the Percentage of Business growth is 113.39. There is only a slight variation in
both of these calculated values. If you go on comparing the consecutive values of the
business growth with that of working capital, you can find approximately similar values.
Even the slightest increase in the working capital will show similar increase in the Business
growth.This clearly shows that the increase in working capital leads to the increase in the
business growth of the Organization. There is a good chance of improving the business of the
LIC of India, by increasing the working capital.

Product Development Strategies:

The economists have found another way, to bring income from the people whose livelihood
is in the remotes areas of India. The LIC of India launched Micro insurance (MI) plans like
AamAadmiBimaYojana, ShikshaSahjogYojana etc. These plans are specifically designed for
the people who are living below poverty line (BPL). It needs a very low premium amount to
be paid on monthly basis and in this Scheme; a certain amount of premium is paid by the
Government itself for the Citizens who fall under the BPL. The policies of the Micro
Insurance Plan are sold through a high sophisticated and specialized distribution Outlets
which comprises of Non-government organizations, corporate agents and a group of 25
companies etc. Such type of investment-cum-insurance plans are targeted towards the people
who are in living in rural areas and the people who have low earning potential.
Marketing Strategies and its Impact in the Business:
The marketing concept in the insurance business is concerned with the expansion of
insurance business. The marketing strategies are classified into two types.

 Conventional marketing
 Financial Services Marketing

The Conventional Marketing consists of 4 P’s

 Price
 Product
 Promotion
 Place

The Financial Services Marketing consists of 8 P’s

 Product element
 Place and time
 Processing
 Productivity
 People
 Promotion
 Physical evidence
 Price

Each of these Individual P’s has certain strategies for them to achieve the given goal or
target. Here the target of the Marketing Team of LIC of India is to achieve the expected
Number of policies (NOP), which has to be sold. The conventional marketing is less effective
than the financial services marketing, which has a broad approach. LIC of India has gone
through the different categories of recent trends in the marketing strategies, which are
implemented in past few years.

To know the impact of all those marketing strategies adopted by LIC of India on their
business front, it is essential for us to study the two important facts.

- Count of the number of policies (NOP)

- Count of the premium earned by LIC of India.

The table below will help us to understand the impact of marketing strategies adopted by the
LIC of India throughout the period (2004-2016).

Years Number of Policies Premium earned

2004-2005 19673320 36063.28
2005-2006 22491304 49821.91
2006-2007 24545580 54628.48
2007-2008 6968069 63167.60
2008-2009 23978123 75983.37
2009-2010 31590707 90759.20
2010-2011 38229292 127782.26
2011-2012 37612599 149705.59
2012-2013 35912667 157186.55
2013-2014 38863450 185985.91
2014-2015 37038751 203358.05
2015-2016 35751238 202802.90
Source: IRDA

It is clearly visible that there is an overall growth in NOP from 19673320 in 2000-01 to
35751238 in 2015-16 .Despite of few downfall in the numbers in the NOP, LIC of India has
still managed to have a continuous growth in the premium from 36063.28 to 202802.90 from
2004-05 to 2015-16.These barely notable decrease in the NOP, has not affected the market of
the LIC of India. And this has to be taken as a very positive sign, for an overall development
of the corporation in the challenging market, and the changing economic reforms.

Impact of Economic Reforms on Life Insurance:

In 1993, the government of India, had set up a committee, headed by R.N. Malhotra, who is
former Governor of RBI, in order to examine the structure of the insurance industry and to
recommend the mandatory changes to make the insurance sector to be more efficient and
profitable.

In January 1994, the committee had submitted its report, and recommended that the private
insurance companies should be allowed to do business in this Indian sub-continent, along
with Government companies like LIC of India, GIC etc. These essential changes which
are recommended by the committee, to be implemented in the insurance Industry, are made
for the development of the industry. And these changes may help to have a wide coverage of
the insurance policies in the Indian population. It was said that the insurance coverage in the
Indian population is not yet fully utilized by the insurance companies.

The following were the Committee’s recommendations

1. Raising the base of LIC and GIC up to Rs 200 cr. In that half of it has to be retained
by the government and the rest of the large share holding to be sold to the public, and
to allot the suitable reservations for employees who were working in the insurance
industry.
2. Private sector should be granted permission to enter the insurance sector with a
minimum capital investment of Rs. 100 cr.
 3. Foreign insurance companies are to be allowed to enter into Indian Insurance sectors,
preferably by joint venture with the Indian Companies.
4. Steps have to be taken to have a strong insurance regulatory in the form of statutory
autonomous board in line with SEBI.

This made a tremendous Impact in the Insurance sector, before these recommendations were
proposed as a law in the Parliament of India, it was thought that it would make tough
competitions between the Insurance companies. But after the proposal, there were many
private companies and a lot of foreign Investors who were willing to take part in the success
story of this gigantic Insurance Company invested their huge money on this Company. And
their belief paid them good returns.

Liberalization of the organization:

There were big private companies with huge money in the market searching for a better spot
to invest their money in India. On august 2000, the government of India has proposed a law
to make liberalization in the insurance sector, which allowed the private organizations to start
their business in the insurance domain. The economists played a major role in bring this law
successfully out of the parliament. This proposal had opened doors for foreign investors to
invest their money in India to get good returns. Even the foreign banks started buying large
amount of shares in the LIC of India and due to that LIC has emerged as a beneficiary with
substantially higher base investment in the Insurance sector. And on 2017, the government
had proposed another law to allow 100% for the FDI holding in the public insurance
companies in India. This made the LIC of India, in the Indian insurance sector, as an
attractive location to do their Investment.

Increase of investments by LIC:

Another major move by the financial advisors was to gradually increase the holdings of the
LIC in other sectors, which resulted in a tremendous growth of this organization. In this way,
the financial losses which were experienced by the LIC of India were hindered by selling
their stakes at profit, which they are having in the other organizations. The Economists
invests their money in the companies, which are showing a substantial growth over a period
of time.

These Investments strategies are framed by the Economists, by the help of the economic
indicators like GDP, Inflation, deflation, bubble formation, currency rate, etc. It is by the use
of these constantly changing indicators, the investment plans are also frequently changed to
escape from the market fluctuations, which results in the shifting of the holdings from one
company to the other company without experiencing any critical loss of the capital invested
in those companies.

The table below shows the investment income of the LIC of India:

Years Investment Income Percentage of growth

(in Cr)
2000-01 316 100
2001-02 821 259.81
2002-03 809 255.01
2003-04 29855 9447.78
2004-05 37066 11729.75
2005-06 40056 12675.95
2006-07 46784 14805.06
2007-08 56595 17909.81
2008-09 78804 24937.97
2009-10 1,12,425 35577.53
Source: IRDA

The graphical representation presented below shows the percentage of increase in the
investment income of the LIC of India.

Source: IRDA

Conclusion:
The Revenue of the LIC of India stands at 7.5% o the total GDP of India. The Standard
growth of this organisation would not be achieved, without the toughest and precise
decisions, taken by the financial advisors or the Economists. They have been there at every
single step of the company’s success, as well as in every single fall back of this Successful
Company. Their knowledge and experience helped the company to stand back in their hard-
times and turn them into their success story. This enormous growth of this company is
achieved with the hard-work of the Economists, who worked for the LIC of India.

References:

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