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Particulars
Introduction Introduction To LIC LIC OF INDIA: History and position after privatization. STATUS AND POSITION OF INDIAN LIFE INSURANCE INDUSTRY IN THE PRE LPG ERA Comparison of LIC as an today and at the time of Nationalization Causes and effects of privatization on insurance firm. Objectives of LIC PROGRESS OF INDIAN LIFE INSURANCE INDUSTRY IN THE POST LPG ERA SETTING-UP OF IRDA, AND THE ENTRY OF PRIVATE INSURANCE COMPANIES Lic in new era LIC OF INDIA: STILL AT THE TOP Conclusion
INTRODUCTION
The new millennium has exposed the insurance sector to new challenges of competition and struggle for survival. The era of liberalization, privatization and globalisation has ended the monopolistic tendency in this sector. It has been over four years since the Indian insurance market has opened up and the new entrants into the market have set up their shops throughout the country. Until the late nineties, the Indian insurance industry was under State control with no private participation. In April 1993 the Government of India appointed the Malhotra Committee to evaluate the insurance industry and to suggest its future direction. The Committee submitted its report in 1994, strongly recommending private participation in the industry. The discussion and efforts to open up the insurance market continued for about six years. The policymakers were in a Catch 22 situation. On the one hand, they wanted competition for the development and growth of the insurance sector, and on the other, they feared that the insurance premium would seep out of the country. Thus they adopted a cautious approach towards opening up the sector to foreign participation. Ultimately, the Insurance Regulatory and Development Act (IRDA) was passed in December 1999 and with this the globalisation of the Indian insurance sector became a reality. Certainly, these developments were bound to have an impact on Life Insurance Corporation (LIC) of India too. The present paper tries to review the current status of LIC in the changed competitive scenario of the insurance industry.
INTRODUCTION TO LIC
The Life Insurance Corporation of India (LIC) (Hindi: ) is the largest state-owned life insurance company in India, and also the country's largest investor. It is fully owned by the Government of India. It also funds close to 24.6% of the Indian Government's expenses. It has assets estimated of 9.31 trillion (US$207.61 billion).[1] It was founded in 1956 with the merger of more than 200 insurance companies and provident societies.[2] Headquartered in Mumbai, financial and commercial capital of India,[3] the Life Insurance Corporation of India currently has 8 zonal Offices and 101 divisional offices located in different parts of India, at least 2048 branches located in different cities and towns of India along with satellite Offices attached to about some 50 Branches, and has a network of around 1.2 million agents for soliciting life insurance business from the public. The slogan of LIC is "Zindagi ke saath bhi,Zindagi ke baad bhi" (Hindi: , ) which means "during life and after life".
The first 150 years were marked mostly by turbulent economic conditions. It witnessed Indias First W ar of Independence, adverse effects of the World War I and World War II on the economy of India, and in between them the period of world wide economic crises triggered b y t h e G r e a t D e p r e s s i o n . T h e f i r s t h a l f o f t h e 2 0 th c e n t u r y a l s o s a w a heightened struggle for Indias Independence. The aggregate effect of t h e s e e v e n t s l e d t o a h i g h r a t e o f b a n k r u p t c i e s a n d l i q u i d a t i o n o f l i f e Insurance companies in adversely affected the faith of the general public in the utility of obtaining life cover. The Life Insurance Act and the Provident Fund Act were passed in 1912, providing the first regulatory mechanism in the Life Insurance industry. T h e I n d i a n I n s u r a n c e C o m p a n i e s A c t o f 1 9 2 8 a u t h o r i z e d t h e g o v t . t o obtain statistical information from companies operating in both life and non-life insurance areas. The subsequent Insurance Act of 1938 brought stricter state control over an insurance that had seen several financially unsound ventures fail. A bill was also introduced in the Legislative Assembly in 1944 to nationalize the insurance industry.
STATUS AND POSITION OF INDIAN LIFE INSURANCE INDUSTRY IN THE PRE LPG ERA
The process of insurance has been evolved to safeguard the interests of people from uncertainty by providing certainty of payment at a given contingency. Life insurance in its modern form came to India from England in 1818 with the formation of Oriental Life Insurance Company (OLIC) in Calcutta mainly by Europeans to help widows of their kin. Later, due to persuasion by one of its directors (Shri Babu Muttyal Seal), Indians were also covered by the company. By 1868, 285 companies were doing business of insurance in India. Earlier these companies were governed by Indian company act 1866. By 1870, 174 companies ceased to exist, when British parliament enacted insurance Act 1870. These companies were however, insuring European lives. Those Indians who were offered insurance cover were treated as sub-standard lives and were accepted with an extra premium of 15% to 20%
Some Areas of Future Growth (before privatization the expectations for future growth) :Life Insurance The traditional life insurance business for the LIC has been a little more than a savings policy. Term life (where the insurance company pays a predetermined amount if the policyholder dies within a given time but it pays nothing if the policyholder does not die) has accounted for less than 2% of the insurance premium of the LIC (Mitra and Nayak, 2001). For the new life insurance companies, term life policies would be the main line of business. Health Insurance Health insurance expenditure in India is roughly 6% of GDP, much higher than most other countries with the same level of economic development. Of that, 4.7% is private and the rest is public. What is even more striking is that 4.5% are out of pocket expenditure (Berman, 1996). There has been an almost total failure of the public health care system in India. This creates an opportunity for the new insurance companies.
Thus, private insurance companies will be able to sell health insurance to a vast number of families who would like to have health care cover but do not have it Pension The pension system in India is in its infancy. There are generally three forms of plans: provident funds, gratuities and pension funds. Most of the pension schemes are confined to government employees (and some large companies). The vast majority of workers are in the informal sector. As a result, most workers do not have any retirement benefits to fall back on after retirement. Total assets of all the pension plans in India amount to less than USD 40 billion. Therefore, there is a huge scope for the development of pension funds in India. The finance minister of India has repeatedly asserted that a Latin American style reform of the privatized pension system in India would be welcome (Roy, 1997). Given all the pros and cons, it is not clear whether such a wholesale privatization would really benefit India or not (Sinha, 2000). First Indian Company Pioneering efforts of reformers and social workers like Raja Ram mohan Ray, Dwarakanath Tagore, Ramatam Lahiri, Rustomji Cowasji and other led to entry of Indians in insurance business. First Indian insurance company under the name Bombay Life Insurance Society started its operation in 1870, and started covering Indian lives at standard rates. Later Oriental Government Security Life Insurance Company, was established in 1874, with Sir Phirozshah Mehta as one of its founder directors and later emerged as a leading Indian insurance company under the name Bombay Life Assurance Society started its operations in 1870.
PRE-INDEPENDENCE SCENARIO
With the patriotic fervour of Non-Corporation Movement (1919) and Civil Disobedience Movement (1929), number of Indian companies entered the insurance arena. Eminent figures in political area like Mahatma Gandhi and Pandit Nehru openly encouraged Indians to enter the fray. In 1914 there were only 44 companies, by 1940 this number grew to 195. Business in force during this period grew from Rs.22.44 crores to Rs.304.03 crores (1628381 polices). Life fund steadily grew from Rs.6.36 crores to Rs.62.41 crores. In 1938, the insurance business was heavily regulated by enactment of insurance Act 1938(based on draft bill presented by Sir N.N.Sarcar in Legislative Assembly in January 1937). From here onwards the growth of life insurance was quite steady except for a setback in 1947-48 due to aftermath of partition of Indian. In 1948, there were 209 insurances, with 712.76 crores business in force under 3,016, 000 policies. The life fund by then grew to 150.39 crores. After completing the arduous task of integration of about 250 life insurance companies, the LIC of India gave an exemplary performance in achieving various objectives of nationalization. The following table shows the achievements of LIC in 40 odd years of its existence
Particulars
1957
1999
Annual Business: Sum Assured Policies First year premium Business in force: Sum Assured Policies Renewal premium Group Business in force: Sum Assured No. of Lives Life Fund:
5.29 crores -
41040 crores
127389.06 crores
MONOPOLY RAJ
The nationalization of life insurance was justified mainly on three counts. (1) It was perceived that private companies would not promote insurance in rural areas. (2) The Government would be in a better position to channel resources for saving and investment by taking over the business of life insurance. (3) Bankruptcies of life insurance companies had become a big problem (at the time of takeover, 25 insurance companies were already bankrupt and another 25 were on the verge of bankruptcy). The experience of the next four decades would temper these views. 5Life Story of the Life Insurance Corporation. The life insurance industry was nationalized under the Life Insurance Corporation (LIC) Act of India. In some ways, the LIC has become very successful. (1) Despite being a monopoly, it has some 60-70 million policyholders. Given that the Indian middle-class is around 250-300 million, the LIC has managed to capture some 30 odd percent of it. (2) The level of customer satisfaction is high for the LIC (one of the findings of the Malhotra Committee, see below). This is somewhat surprising given the frequent delays in claim settlement. (3) Market penetration in the rural areas has grown substantially. Around 48% of the customers of the LIC are from rural and semi-urban areas. This probably would not have happened had the charter of the LIC not specifically set out the goal of serving the rural areas. One exogenous factor has helped the LIC to grow rapidly in recent years: a high saving rate in India. Even though the saving rate is high in India (compared with other countries with a similar level of development), Indians exhibit high degree of risk aversion. Thus, nearly half of the investments are in physical assets (like property and gold). Around twenty three percent are in (low yielding but safe) bank deposits. In addition, some 1.3- percent of the GDP are in life insurance related savings vehicles. This figure has doubled between 1985 and 1995. Life Insurance in India: A World Perspective In many countries, insurance has been a form of savings. Table 2 shows that in many developed countries, a significant fraction of domestic saving is in the form of (endowment) insurance plans. This is not surprising. The prominence of some developing countries is more surprising. For example, South Africa features at the 6 number two spot. India is nestled between Chile and Italy. This is even more
surprising given the levels of economic development in Chile and Italy. Thus, we can conclude that there is an insurance culture in India despite a low per capita income. This bodes well for future growth. Specifically, when the income level improves, insurance (especially life) is likely to grow rapidly. LIFE INSURANCE PREMIUM AS PERCENTAGES OF THE GROSS DOMESTIC SAVING (GDS) AND THAT OF GROSS DOMESTIC PRODUCT (GDP) Rank Country % of GDS % of GDP 1. United Kingdom 52.50 7.31 2. South Africa 51.55 10.32 3. Japan 32.46 10.10 4. France 26.20 4.91 5. USA 25.20 3.63 6. South Korea 23.66 9.10 7. Finland 23.10 4.98 8. Switzerland 21.92 5.99 9. Netherlands 19.04 4.51 10. Israel 18.84 4.41 11. Sweden 17.88 3.51 12. Australia 17.78 3.48 13. Canada 17.05 3.04 14. Zimbabwe 15.88 6.27 15. Ireland 14.96 4.59 16. Greece 13.87 1.12 17. New Zealand 12.75 3.04 18. Taiwan 12.29 3.64 19. Denmark 12.00 2.71
20. Spain 11.68 2.23 21. Germany 11.40 2.80 22. Norway 9.57 2.33 23. Belgium 9.13 2.38 24. Portugal 8.76 1.65 25. Austria 6.96 2.10 26. Chile 6.96 1.95 27. India 5.95 1.29 28. Italy 5.60 1.13 29. Malaysia 5.35 2.30 30. Singapore 4.72 2.73
Well established distribution network: distribution refers to the arrangement by which the product after manufacture is moved till it reaches the customer. There are various intermediaries in every business that do this job. Insurance business is sold through agents. Recently banks also linked with insurance firms. Known as bancassurance. Public sector banks which have huge branch network because of their long existence, plays a very crucial role in this direction. Trained professionals: in the past, insurance agents were consideres to be the best salesman for insurance products but now privatization and globalization more professionalism has been seen.
Rational approach to the investment criteria: the guidelines issued by IRDA for investment pattern has been adopted so as meet the obligations. LIC followed these guidelines and kept in mind that more the people insured, the better the revenue, the better the security and ultimately better morale and productivity. Stringent accounting practices: the insurer has mobilized the hard earned money of the masses. The failure for any reason had disastrous effects. To prevent such a possibility, imperative insurers follow stringent accounting practices. Advertising and publicity: In the present age of competition, any organization can be successful only if it is able to convince customers about the quality and effectiveness of its products. LIC did a wonderful job in this regard. But to improve its performance it started giving importance to advertising its products usinga wide range of advertising methods such as print and electronic media,sponsoring events, road shows,etc
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 (US$ 92 million as per the 1959 exchange rate of roughly Rs. 5 for a US $ [4], has grown to 25000 servicing around 350 million policies and a corpus of over 8 trillion (US$178.4 billion)
RESEARCH OBJECTIVE
The report gives the brief background of the sector and proceeds to highlight the short comings of the existing setup and players. T h e benefits of liberalized sector are enumerated. The report also tries to identify the market potential for insurance products and the strategy that we employed to exploit the same. The stress is also given on knowing the awareness level of general public. First and foremost objective is to find out the reasons for using of Different Products of LIC. To find out the services that other insurance companies are giving to their customers. To build the relationship with the customers and to follow up them, make sure that they are satisfied with the product. To maintain good relationships with the corporate employees. To get more references from the customers and generate new leads by following a chain process. To place LIC Products ahead of the competitors. To find out the customer awareness on booming Advance Product market and to find out the using patterns of the people.
e. LIC is 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 October 2005, posting a healthy growth rate of 16.67 percent over the corresponding period of previous year. Mr. A.K. Shukla, Chairman, LIC has expressed his gratitude to the policyholders and complimented them for their overwhelming response and continued trust in the Corporation during the Golden Jubilee Year. He assured the public that LIC would reciprocate this faith reposed by providing even more value added services to the customers.
CONCLUSION
The data was analyzed using method of least squares. It was found that the businesses in India, the business outside India as well as the total business of LIC are always in an increasing trend. The collected and analyzed data prove that the LPG is incorporating a positive influence on LIC of India and its performance. "Life Insurance Corporation of India : Impact of Privatisation and Performance presents an in-depth analysis of LIC's performance in respect of various indicators since the policy of liberalisation was introduced in the country. The productivity analysis of the corporation has been carried out using different parameters. The portfolio management of the corporation has been studied in detail in respect of loans and investments. The impact of privatisation on the performance of LIC has been evaluated in terms of its market share in various parameters of insurance vis-a-vis the private players. The book also identifies key determinants of the performance of LIC and makes recommendations for improving it. After privatization LIC still maintained its level on top. LIC had a tremendous change in its policy, products,schemes. The impact of privatization on insurance sector was very gud since it brought many new insurance companies in market. India is not unique among the developing countries where the insurance business has been opened up to foreign competitors.we observe that the openness of the market did not mean a takeover by foreign companies even in a decade. Thus, it is unlikely that the same will happen in India, especially when the foreign insurers cannot have a majority shareholding in any company
BIBLIOGRAPHY:infibean.com Business Today. "The Monitory Group Study on Insurance I and II." www.licindia.in and other information from newspaper and net.