Description
report
2008
IRLM project
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SSIM
A DETAILED PROJECT REPORT
ON LIFE INSURANCE CORPORATION {LIC} OF INDIA
Submitted to:Mr. B.S Rao
Submitted by: Arjun Roy {B2-08}
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Table of Contents Insurance-an Introduction ...................................................................................................... 3 The History of Insurance Worldwide .................................................................................... 4 Insurance Industry in India .................................................................................................... 5 Life Insurance at a glance ....................................................................................................... 7 Insurance Act 1938 ................................................................................................................... 8 Malhotra Committee ................................................................................................................. 9 Regulator of Insurance Industry in India-IRDA……………………………………………………....11 Structure of Insurance Industry…………………………………………………………………….…………..13 LIC-Introduction…………………………………………………………………………..…………………….……14 Channels of Distribution………………………………………………………………….………..…..……..….15 New Business brought in by all Channels of Distribution……………………….…..……………17 Span of Organization……………………………………………….………………………….……………………19 Investment in Government and Social Sector…………………………….…………………..…………20 Asset Under Management………………………..…………………………………………………….…………21 Products…………………………………………………………………………………………………………………..21 Impact of on Financial Crisis on LIC……………………….………………………………………….….22 Awards won by Lic……………………………………………………………………………………………..……23 Summary………………………………………………………………………………………………………………….23
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Insurance – An Introduction : Insurance is actually a contract between 2 parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party happening of a certain event. Insurance described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individual. • Large number of people exposed to a similar risk , With the help of Insurance, makes contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. • The risk, which can be insured against include fire, the peril of sea, death, incident, & burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved. • Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. In order for the concept of insurance to arise a pre-payment of some type is required. In the case of typical, everybody general auto, health and life insurance for example the pre payment is in the form of a premium. Prior to the eve to the year 2000 thousands of people flocked to the stores stocking up on numerous supplies. The supplies they purchased would act as a reimbursement in the case of loss. Early insurance goes back to the Egyptians times. It was known that around 3000 BC, Chinese merchants dispersed their shipments among several vessels to avoid the possibility of damage or loss. There are some insurance companies around today in the united states that provided insurance back in the mid 1700’s , as well as some that provided relief to banks during the 1930’s and depression. Today, there is insurance for many aspects of
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daily living: business, auto, health, life, travel. Each of those categories includes sub categories, branching of into numerous divisions.
The History of Insurance Worldwide : The roots of insurance might be traced to Babylonia, where traders were encouraged to assume the risks of the caravan trade through loans that were repaid (with interest) only after the goods had arrived safely—a practice resembling bottomry and given legal force in the Code of Hammurabi (c.2100 B.C.). The Phoenicians and the Greeks applied a similar system to their seaborne commerce. The Romans used burial clubs as a form of life insurance, providing funeral expenses for members and later payments to the survivors. With the growth of towns and trade in Europe, the medieval guilds undertook to protect their members from loss by fire and shipwreck, to ransom them from captivity by pirates, and to provide decent burial and support in sickness and poverty. By the middle of the 14th cent., as evidenced by the earliest known insurance contract (Genoa, 1347), marine insurance was practically universal among the maritime nations of Europe. In London, Lloyd's Coffee House (1688) was a place where merchants, shipowners, and underwriters met to transact business. By the end of the 18th cent. Lloyd's had progressed into one of the first modern insurance companies. In 1693 the astronomer Edmond Halley constructed the first mortality table, based on the statistical laws of mortality and compound interest. The table, corrected (1756) by Joseph Dodson, made it possible to scale the premium rate to age; previously the rate had been the same for all ages. Insurance developed rapidly with the growth of British commerce in the 17th and 18th cent. Prior to the formation of corporations devoted solely to the business of writing insurance, policies were signed by a number of individuals, each of whom wrote his name and the amount of risk he was assuming underneath the insurance proposal, hence the term
underwriter. The first stock companies to engage in insurance were chartered in England in
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1720, and in 1735, the first insurance company in the American colonies was founded at Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and in Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first life insurance corporation in America, for the benefit of Presbyterian ministers and their dependents. After 1840, with the decline of religious prejudice against the practice, life insurance entered a boom period. In the 1830s the practice of classifying risks was begun. The New York fire of 1835 called attention to the need for adequate reserves to meet unexpectedly large losses; Massachusetts was the first state to require companies by law (1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly nature of fires in structurally dense modern cities. Reinsurance, whereby losses are distributed among many companies, was devised to meet such situations and is now common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain required employers to insure their employees against industrial accidents. Public liability insurance, fostered by legislation, made its appearance in the 1880s; it attained major importance with the advent of the automobile.
Insurance Industry in India : The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage. The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during
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1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business. Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalized monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore. Before 1956, insurance was private with minimal government intervention. In 1956, life insurance was nationalized and a monopoly was created. In 1972, general insurance was nationalized as well. But, unlike life insurance, a different structure was created for the industry. India had the nineteenth largest insurance market in the world in 2003. Strong economic growth in the last decade combined with a population of over a billion makes it one of the potentially largest markets in the future. Insurance in India has gone through two radical transformations. One holding company was formed with four subsidiaries. As a part of the general opening up of the economy after 1992, a Government appointed committee recommended that private companies should be allowed to operate. It took six years to implement the recommendation. Private sector was allowed into insurance business in 2000. However, foreign ownership was restricted. No more than 26% of any company can be foreign-owned. A totally regulation free regime ended in 1912 with the introduction of regulation of life insurance. A comprehensive regulatory scheme came into place in 1938. This was disabled through nationalization in what follows, we examine the insurance industry in India through different regulatory regimes. But, the Insurance Act of 1938 became relevant again in 2000 with deregulation. With a strong hint of sustained growth of the economy in the recent past, the Indian market is likely to grow substantially over the next few decades.
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The rest of the chapter is organized as follows. First, we study the evolution of insurance business before nationalization. This is important because the denationalized structure brought back to play important legal rules from 1938. Next we analyze the nationalized era separately for life and property casualty business as they were not nationalized simultaneously. Much of post-independence history of insurance in India was the history of nationalized insurance. In the following section, we examine the new legal structure introduced after the industry was denationalized in 2000. In the penultimate section, we examine the current state of play and projected future of the industry.
Life Insurance : At a Glance life insurance provides your family with a sum of money should something happen to you. It thus permanently protects your family from financial crises. Life insurance is a guarantee that your family will receive financial support, even in your absence. Put simply, In addition to serving as a protective cover, life insurance acts as a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your children married and even retire comfortably. Life insurance also triples up as an ideal tax-saving scheme. To know more, read the Key Benefits of Life Insurance. There are many options with coverage, depending on insured situation. And there are two main categories of life insurance: term life, and whole life insurance. Term life is the simplest and least expensive type of policy. It’s pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whomever you have designated, upon a specific event of insured death.
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Whole life insurance provides permanent protection insured dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts. In the first few years, when you’re young, its cost will be low, so the bulk of the money goes to pay the agent and into an investment account. However, as you get older, the cost of insuring you increases, so less of your premium goes into the investment account. The money that goes into the account in the early years of your policy therefore grows. The cash value of your whole life policy is the amount you’d get if you decide to surrender it. Whole life insurance is so named because it’s designed to stay in force throughout your life.
Insurance Act, 1938 In 1938, with a view to protect the interest of insuring public, earlier legislation(1928) was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for detailed and effective control over the activities of insurer. For the first time in the history of insurance in India, the whole business was brought under a unified system of control and its structure strengthened by statutory regulations. Weaker elements were weeded out; indiscriminate promotion was checked and speculative insurance was eliminated. The best proof the soundness of the law was the effective check on large scale liquidations which had marred the name of insurance in the thirties. In due course, various amendments were made in the Indian Insurance Act 1938 in subsequent years to improve the regulatory mechanism. The Act of 1938, which in many respects codified and modernized the laws relating to insurance in the country, suggest the same noteworthy changes in regulation and organization of business. It was considerable step forward in the direction to envelop all forms of insurance.
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Malhotra Committee In 1993, the first step towards insurance sector reforms was initiated with the formation of Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra. The committee was formed to evaluate the Indian insurance industry and recommend its future direction with the objective of complementing the reforms initiated in the financial sector. Key Recommendations of Malhotra Committee Structure
• •
Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate. Competition
•
•
Private Companies with a minimum paid up capital of Rs.1billion should be allowed to enter the industry. No Company should deal in both Life and General Insurance through a single Entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state. Regulatory Body
• •
• •
• •
The Insurance Act should be changed. An Insurance Regulatory body should be set up.
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Controller of Insurance should be made independent. Investments
•
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company. Customer Service
•
• • •
LIC should pay interest on delays in payments beyond 30 days Insurance companies must be encouraged to set up unit linked pension plans. Computerisation of operations and updating of technology to be carried out in the insurance industry. Malhotra Committee also proposed setting up an independent regulatory body - The Insurance Regulatory and Development Authority (IRDA) to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. Insurance sector in India was liberalized in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. There is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. The opening up of the insurance sector has led to rapid growth of the sector. Presently, there are 16 life insurance companies and 15 non-life insurance companies in the market. The potential for growth of insurance industry in India is immense as nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be well below international standards.
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Regulator Of Insurance Industry In India : IRDA The Insurance Regulatory and Development Act of 1999 were set out as follows. “To provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto and further to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act, 1972.” The Act effectively reinstituted the Insurance Act of 1938 with (marginal) modifications. Whatever was not explicitly mentioned in the 1999 Act referred back to the 1938 Act? (1) It specified the creation and functioning of an Insurance Advisory Committee that sets out rules and regulation. (2) It stipulates the role of the “Appointed Actuary”. He/she has to be a Fellow of the Actuarial Society of India. For life insurers the Appointed Actuary has to be an internal company employee, but he or she may be an external consultant if the company happens to be a non-life insurance company. The Appointed Actuary would be responsible for reporting to the Insurance Regulatory and Development Authority a detailed account of the company. (3) Under the “Actuarial Report and Abstract”, pricing of products have to be given in detail. It also requires details of the basic assumptions for valuation. There are prescribed forms that have to be filled out by the Appointed Actuary including specific formulas for calculating solvency ratios. (4) It stipulates the requirements for an agent. For example, insurance agents should have at least a high school diploma along with training of 100 hours from a recognized institution.
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(5) Under “Assets, Liabilities, and Solvency Margin of Insurers”, the Insurance Regulatory and Development Authority has set up strict guidelines on asset and liability management of the insurance companies along with solvency margin requirements. Initial margins are set high (compared with developed countries). The margins vary with the lines of business. Life insurers have to observe the solvency ratio, defined as the ratio of the amount of available solvency margin to the amount of required solvency margin: (a) the required solvency margin is based on mathematical reserves and sum at risk, and the assets of the policyholders’ fund; (b) the available solvency margin is the excess of the value of assets over the value of life insurance liabilities and other liabilities of policyholders’ and shareholders’ funds. (6) It sets the reinsurance requirement for (general) insurance business. For all general insurance, a compulsory cession of 20% regardless of line of business to the General Insurance Corporation, the designated national reinsurer was stipulated. (7) Under the “Registration of Indian Insurance Companies”, it sets out details of registration of an insurance company along with renewal requirements. For renewal, it stipulates a fee of one-fifth of one percent of total gross premium written direct by an insurer in India during the financial year preceding the year. It seeks to give detailed background for each of the following key personnel: Chief Executive, Chief Marketing Officer, Appointed Actuary, Chief Investment Officer, Chief of Internal Audit and Chief Finance Officer. Details of sales force, activities in rural business and projected values of each line of business are also required. (8) Under “Insurance Advertisements and Disclosure”, details of insurance advertisement in physical and electronic media has to be detailed with the Insurance Regulatory and Development Authority. The advertisements have to comply with the regulation prescribed in section 41 of the Insurance Act, 1938. The Act of 1938 says, “No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property
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in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectus or tables of the insurer.” (9) All insurers are required to provide some coverage for the rural sector. It is called the “Obligations of Insurers to Rural Social Sectors”
Structure of Insurance Industry Historical Perspective (i) Prior to 1956 242 companies operating (ii) 1956 - 2001 Nationalisation – LIC monopoly player – Government control (iii) 2001 -- Opened up sector
Present Structure of Insurance Industry (a) LIC – Fully owned by Government (b) Postal Life Insurance • (ii) Private players 1. Bajaj Allianz Life Insurance Co. Ltd. 2. Birla Sun Life Insurance Co. Ltd. (BSLI) 3. HDFC Standard Life Insurance Co. Ltd. (HDFC STD LIFE) 4. ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU) 5. ING Vysya Life Insurance Co. Ltd. (ING VYSYA)
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6. Max New York Life Insurance Co. Ltd. (MNYL) 7. MetLife India Insurance Co. Pvt. Ltd. (METLIFE) 8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 9. SBI Life Insurance Co. Ltd. (SBI LIFE) 10. TATA AIG Life Insurance Co. Ltd. (TATA AIG) 11. AMP Sanmar Assurance Co. Ltd. (AMP SANMAR) 12. Aviva Life Insurance Co. Pvt. Ltd. (AVIVA) 13. Sahara India Life Insurance Co. Ltd. (SAHARA LIFE) 14. Shriram Sunlam • (iii) Other likely players – PNB Life Insurance, Reliance Life Insurance,
Life Insurance Corporation of India (LIC) The Life Insurance Corporation of India has been a national-builder since its formation in 1956. The performance of LIC has been exemplary and has been growing from strength be it customer base, agency network, branch office network, new business premium and the like. It has played a significant role in spreading life insurance widely across the country. True to objectives of nationalization, the LIC has invested the funds mobilized from policy holders for the benefit of the community at large. The other subsidiary companies under LIC are: Life Insurance Corporation (LIC) of India International – A joint venture offshore company promoted by LIC which commenced its operations in July, 1989 with the objective of offering policies denominated in US $ to NRIs residing in the Gulf. LIC Nepal – Formed in 2001 in joint venture with Vishal Group of Industries, Nepal. LIC Lanka – Formed in 2003 in joint venture with Bartleet Group of Companies, Sri Lanka
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LIC Housing Finance – Established in 19th June, 1989 in Dubai with the objective of providing long term finance for construction of houses or apartments. LIC Housing Finance Limited Care Homes – A wholly owned subsidiary of LIC Housing Finance which builds “Assisted Community Living Centers” for senior citizens.
2007Business performance in 2007-2008 1. 2. 3. 4. 5. Total Income Total Premium Income Total Policy Payments Total Life Fund Total Assets
{Rs. In Crores} Rs 2,06,363 Rs 1,49,706 Rs 57,623 Rs 6’86’616 Rs 8,03,820
The business performance for LIC in the last fiscal year (07-08) has been good compared to the fiscal year (06-07). There has been a significant growth in total assets and total income earned. Distribution Channels of Distribution Agent: Individual Agent The individual agent has been the bedrock and the lynchpin in the marketing of insurance, especially life insurance. The professional agent has been the strongest link between the life insurer and the customer. The professional agent has the onerous role of explaining the concepts, terms and conditions, benefits and privileges of the insurance contract. He has to analyze the financial requirements and risks faced by the customers and market insurance plans suited to the needs and means of the customers. All insurance companies, and life insurance companies in particular, have recognized the paramount importance of this channel. The number of agents has grown at a spectacular rate. The total number of agents on they roll is 11,03,047 as on 31.03.2007 as against 10,52,283 as on 31.03.2006.
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Agents: Corporate Agents : The number of corporate agents has grown in recent years. Corporate agent is a concept introduced with a view to taking advantage of the presence of a large number of entities with a sizeable client base, contacts and goodwill already operating in the market. With multi locations and a network of people assisting them, these entities have a different structure and purpose. Hence their existing network could be utilized to market insurance. The corporate agent could thus be defined as a person - meaning a firm or company formed under the Companies Act, 1956 or a banking company or a Bank/RRB or a co-operative society registered under the Co-operative societies Act, 1912 or a panchayat or a NGO/MFI covered under the Coop Societies Act or a NBFC registered with RBI or any other institution. They assist greatly in the spread of insurance through institutions. Brokers: Brokers: Brokers are permitted to sell products of more than one insurer. Brokers have been very predominant in the non life arena. Large risks require quite sophisticated expertise. Brokers have played a very key role in this area both in selling products and in servicing of Insurance claims. Brokers have now also entered the Life Insurance market. Bancassurance: Bancassurance is developing as an important channel in India. This is Bancassurance: due to the large reach and customer base of banks in both urban and rural areas in India. The persistency rate in Bancassurance, due to the continuous contact with the client is better than in other channels. The ease of payment of premium and the facility of maturity/claim payments through the bank account make it a customer friendly channel Referrals: Referrals: This is a new concept very similar to getting a prospecting list and leads to effect sales with customers. It is evident that in addition to banks, there could be various
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the
greater
reach
of
the
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other entities which could act as a referral provider due to the large database of members/clients, like credit cardholders association members, society members etc. In short, such institutions could share or market their database to provide leads to the intermediaries to sell insurance products. The referral provider is not a licensed intermediary, but can be regulated by the insurance Regulator, through approval of the terms of the agreement, between the insurer and the referral provider. Marketing: Direct Marketing : In the new technological environment, new
innovative marketing systems have evolved. The use of inter-net, web based sales, e- marketing, telecalling, mobile SMS have made giant strides in reaching out to customers. This is an emerging channel which in future may grow in size and proportion of sales. This channel requires active regulation which should be on issues of transparency, disclosure, privacy, contract, TRAI guidelines etc. It would be necessary to give full complete information through soft copies of proposal forms, schedules, policies etc.
New Business Brought in by All Channels of Distribution : (1/4/2oo7 to 31/3/2008) (Individual Assurances) Policies ( in lakh) Composite Composite Growth Rate 375.90 -1.62 % Sum Assured ( in crore ) 2, 75, 457.65 -9.12 % First Premium Income (in crore) 43,812.86 10.80%
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Schemes Pension & Group Business & Social Security Schemes Achievement From 1.4.2007 to 31.03.2008 Pension & Group Schemes No. of New Lives Premium Income (Rs. In Crore ) 153.71 lac 10356.94 83% -9% Growth Rate Social Security Growth Schemes 113.67 lac 192.56 Rate 98% 91%
Business In Force as on 31.3.2008 Policies (in crore ) Individual Assurance Group Insurance (lives) 23.39 5.10` Sum Assured ( Rs. In crore) 17, 28, 679 3, 06, 711
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Span of Organization Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices and the corporate office. LIC’s wide are network covers 100 divisional offices and connects all the branches through a Metro Area Network. LIC has tied up with some banks and service providers to offer on-line premium collection facility in selected cities. 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, Ahmadabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policy holders, LIC has launched SATELLITE SAMPARK OFFICES. The Satellite offices are smaller, leaner and closer to the customer. The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future.
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Investment In Govt. & Social Sector As per the prescribed investment pattern approved by IRDA, the controlled funds are invested as follows:Not less than 50% is invested in Govt. Securities or other approved Investments. Not less than 15% is invested in infrastructural and social sector Investments. Not exceeding 35% in others to be governed by prudent exposure norms.
Investment In Govt. & Social Sector (Rs. in Crores)
Type of investment 31.03.06 01. 02. CENTRAL GOVT.SECURITIES 236959 58928 STATE GOVT.& OTHER GOVT.. GUARANTEED MARKETABLE SECURITIES Sub-Total (A) 03. INFRASTRUCTURE AND SOCIAL SECTOR INVESTMENT a) HOUSING b) POWER c) IRRIGATION / WATER SUPPLY & SEWARAGE d) ROAD,RAILWAYS,PORT&BRIDGES e) OTHERS Sub – Total (B) TOTAL As on 31.03.07 272498 64285 31.03.08 298157 89195
295887
336783
387352
19807 29740 8288 725 3954 62514 304002
22451 37881 7500 1516 4398 73746 358401
24325 41120 6649 1154 8774 82022 410529
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ASSET UNDER MANAGEMENT Asset Under Management is the total value of assets that a mutual fund, a hedge fund, or other portfolio manager manages and administers for itself and its customers. The year 2006-07 was a good year for LICMF. There has been all round improvement in the number of intermediaries , reach, number of collections and amount of collections. Total collections went up by 180% and number of redemptions were brought down by 16%. The Assets Under Management(AUM) rose from Rs. 5228.89 crores as 31/03/2006 to Rs. 9642.80 crores as at 31/03/07 showing a growth rate of 84.41% as against the industry growth of 40.83%.
Products: Products: They have in their basket more than 40 different plans catering to the differing needs of different segments of the society,covering a age group of 0-80 year-,basic insurance plans (whole life, endowment and money back), Term Assurance Plans, Pension Plans, Capital Market linked Plans, Health Plan etc. New products launched in 2007-08 1. Jeevan Bharti –I (Money Back Plan exclusively for Women) 2. Market Plus-I (Unit linked Pension Plan) 3. Money Plus-I (Unit linked Insurance plan) 4. Anmol Jeevan-I (Term Insurance Plan) 5. Child Career Plan & Child Future Plan (Children’s Plans) 6. Health Plus- (Unit Linked)
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Impact of the financial crisis on Life Insurance Corporation: crisis Even though the SENSEX Crashed from 21,207 on 08-01-2008 to 10,528 on 10-102008……….the people who had invested in LIC’ s did not suffer much loss as compared to other industries shares. Script/ Funds SENSEX Jayaprakash Ass Reliance Infra DLF Sterile Inds ICICI Bank Reliance Comm Tata Steel Tata Motors L&T Hindalco Grasim Inds Reliance Inds Tata power LIC Value of the Fund on 08.01.08 21207 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 Value of the Fund on 10.10.08 10528 16483 20319 24479 26504 27304 29516 32238 38873 41044 42512 43431 50057 49429 89715 % Change in the Value -50.36 -83.52 -79.68 -75.52 -73.5 -72.7 -70.48 -67.76 -61.13 -58.96 -57.57 -56.57 -49.94 -50 .57 -10.28
A person who has invested Rs. 100000 in Jayaprakash Ass, the present value of that investment is Rs. 16493, which implies a loss 83.52%, while a person who invested Rs.100000 in LIC, today the value of fund is Rs. 89713 which shows a loss of 10.28%. LIC is a public sector insurer and a domestic investor. As such, they are not directly affected by the global financial crisis. However, the volatility in Indian financial market due to the uncertainty in global markets has affected returns they gt on their investments. But LIC has an indisputable record of prudently planning its investments and getting the maximum returns on the policyholders’ money.
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Awards Won Won Some of the recent awards received by LIC are 1. LIC has been ranked :” Number One Trusted Service Brand” in the Economic Times Brand Equity Survey for the year 2008 for the 5th consecutive year, with overall ranking across all categories going up from 27th to 12th. 2. Readers Digest “Trusted Brand”2008 in the platinum category. 3. SKOCH Challengers Award 2008 for our Micro Insurance Product Jeevan Madhur. 4. Customer & Brand Loyalty Award 2008 in the Life Insurance category from India times Mindscape. 5. Rated as the “Most Preferred Life Insurance Company of the year” at the CNBC Awaaz Consumer Awards 2007 third time in a row. 6. “Conferred Peacock Award “ for Excellence in Corporate Governance 7. Conferred Outlook Money NDTV profit-“Best Life Insurer Award 2007” 8. “Web 18- Genius of the Web award -2007 “For the best website in Insurance Category. 9. Adjusted the” Best Life Insurance Company of the year”- at the Second NDTV Profit Business Leadership Awards-2007. Summary The Life Insurance Corporation of India has been a nation-builder since its formation in 1956. The Corporation has deployed the funds to the best advantage of the policyholders as the community as a whole. Year on year LIC’s productivity and profitability provides shareholders with an improving dual return - as co-operative shareholders through a wider range of services and products and as investors in the business, with a useful return on capital and an increasing share price. The LIC investment strategy is very clear. It is based on their investment policy, Irda regulations, Insurance Act and the LIC Act. According to the guidelines, 50 per cent of the total investible funds must be in government securities - 25 per cent should be in central government securities, and up to 50 per cent in both state and central government securities. The market has come down by about 50 per cent from its peak in January, but the value of their investments have come down by only 15-20 per cent. For
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LIC, the situation has turned out to be a boon, as the public is now more biased towards public sector entities like them instead of investing in private companies.
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doc_474243927.pdf
report
2008
IRLM project
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SSIM
A DETAILED PROJECT REPORT
ON LIFE INSURANCE CORPORATION {LIC} OF INDIA
Submitted to:Mr. B.S Rao
Submitted by: Arjun Roy {B2-08}
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Table of Contents Insurance-an Introduction ...................................................................................................... 3 The History of Insurance Worldwide .................................................................................... 4 Insurance Industry in India .................................................................................................... 5 Life Insurance at a glance ....................................................................................................... 7 Insurance Act 1938 ................................................................................................................... 8 Malhotra Committee ................................................................................................................. 9 Regulator of Insurance Industry in India-IRDA……………………………………………………....11 Structure of Insurance Industry…………………………………………………………………….…………..13 LIC-Introduction…………………………………………………………………………..…………………….……14 Channels of Distribution………………………………………………………………….………..…..……..….15 New Business brought in by all Channels of Distribution……………………….…..……………17 Span of Organization……………………………………………….………………………….……………………19 Investment in Government and Social Sector…………………………….…………………..…………20 Asset Under Management………………………..…………………………………………………….…………21 Products…………………………………………………………………………………………………………………..21 Impact of on Financial Crisis on LIC……………………….………………………………………….….22 Awards won by Lic……………………………………………………………………………………………..……23 Summary………………………………………………………………………………………………………………….23
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Insurance – An Introduction : Insurance is actually a contract between 2 parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party happening of a certain event. Insurance described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individual. • Large number of people exposed to a similar risk , With the help of Insurance, makes contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. • The risk, which can be insured against include fire, the peril of sea, death, incident, & burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved. • Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. In order for the concept of insurance to arise a pre-payment of some type is required. In the case of typical, everybody general auto, health and life insurance for example the pre payment is in the form of a premium. Prior to the eve to the year 2000 thousands of people flocked to the stores stocking up on numerous supplies. The supplies they purchased would act as a reimbursement in the case of loss. Early insurance goes back to the Egyptians times. It was known that around 3000 BC, Chinese merchants dispersed their shipments among several vessels to avoid the possibility of damage or loss. There are some insurance companies around today in the united states that provided insurance back in the mid 1700’s , as well as some that provided relief to banks during the 1930’s and depression. Today, there is insurance for many aspects of
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daily living: business, auto, health, life, travel. Each of those categories includes sub categories, branching of into numerous divisions.
The History of Insurance Worldwide : The roots of insurance might be traced to Babylonia, where traders were encouraged to assume the risks of the caravan trade through loans that were repaid (with interest) only after the goods had arrived safely—a practice resembling bottomry and given legal force in the Code of Hammurabi (c.2100 B.C.). The Phoenicians and the Greeks applied a similar system to their seaborne commerce. The Romans used burial clubs as a form of life insurance, providing funeral expenses for members and later payments to the survivors. With the growth of towns and trade in Europe, the medieval guilds undertook to protect their members from loss by fire and shipwreck, to ransom them from captivity by pirates, and to provide decent burial and support in sickness and poverty. By the middle of the 14th cent., as evidenced by the earliest known insurance contract (Genoa, 1347), marine insurance was practically universal among the maritime nations of Europe. In London, Lloyd's Coffee House (1688) was a place where merchants, shipowners, and underwriters met to transact business. By the end of the 18th cent. Lloyd's had progressed into one of the first modern insurance companies. In 1693 the astronomer Edmond Halley constructed the first mortality table, based on the statistical laws of mortality and compound interest. The table, corrected (1756) by Joseph Dodson, made it possible to scale the premium rate to age; previously the rate had been the same for all ages. Insurance developed rapidly with the growth of British commerce in the 17th and 18th cent. Prior to the formation of corporations devoted solely to the business of writing insurance, policies were signed by a number of individuals, each of whom wrote his name and the amount of risk he was assuming underneath the insurance proposal, hence the term
underwriter. The first stock companies to engage in insurance were chartered in England in
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1720, and in 1735, the first insurance company in the American colonies was founded at Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and in Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first life insurance corporation in America, for the benefit of Presbyterian ministers and their dependents. After 1840, with the decline of religious prejudice against the practice, life insurance entered a boom period. In the 1830s the practice of classifying risks was begun. The New York fire of 1835 called attention to the need for adequate reserves to meet unexpectedly large losses; Massachusetts was the first state to require companies by law (1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly nature of fires in structurally dense modern cities. Reinsurance, whereby losses are distributed among many companies, was devised to meet such situations and is now common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain required employers to insure their employees against industrial accidents. Public liability insurance, fostered by legislation, made its appearance in the 1880s; it attained major importance with the advent of the automobile.
Insurance Industry in India : The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage. The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during
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1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business. Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalized monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5 crore. Before 1956, insurance was private with minimal government intervention. In 1956, life insurance was nationalized and a monopoly was created. In 1972, general insurance was nationalized as well. But, unlike life insurance, a different structure was created for the industry. India had the nineteenth largest insurance market in the world in 2003. Strong economic growth in the last decade combined with a population of over a billion makes it one of the potentially largest markets in the future. Insurance in India has gone through two radical transformations. One holding company was formed with four subsidiaries. As a part of the general opening up of the economy after 1992, a Government appointed committee recommended that private companies should be allowed to operate. It took six years to implement the recommendation. Private sector was allowed into insurance business in 2000. However, foreign ownership was restricted. No more than 26% of any company can be foreign-owned. A totally regulation free regime ended in 1912 with the introduction of regulation of life insurance. A comprehensive regulatory scheme came into place in 1938. This was disabled through nationalization in what follows, we examine the insurance industry in India through different regulatory regimes. But, the Insurance Act of 1938 became relevant again in 2000 with deregulation. With a strong hint of sustained growth of the economy in the recent past, the Indian market is likely to grow substantially over the next few decades.
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The rest of the chapter is organized as follows. First, we study the evolution of insurance business before nationalization. This is important because the denationalized structure brought back to play important legal rules from 1938. Next we analyze the nationalized era separately for life and property casualty business as they were not nationalized simultaneously. Much of post-independence history of insurance in India was the history of nationalized insurance. In the following section, we examine the new legal structure introduced after the industry was denationalized in 2000. In the penultimate section, we examine the current state of play and projected future of the industry.
Life Insurance : At a Glance life insurance provides your family with a sum of money should something happen to you. It thus permanently protects your family from financial crises. Life insurance is a guarantee that your family will receive financial support, even in your absence. Put simply, In addition to serving as a protective cover, life insurance acts as a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your children married and even retire comfortably. Life insurance also triples up as an ideal tax-saving scheme. To know more, read the Key Benefits of Life Insurance. There are many options with coverage, depending on insured situation. And there are two main categories of life insurance: term life, and whole life insurance. Term life is the simplest and least expensive type of policy. It’s pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whomever you have designated, upon a specific event of insured death.
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Whole life insurance provides permanent protection insured dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts. In the first few years, when you’re young, its cost will be low, so the bulk of the money goes to pay the agent and into an investment account. However, as you get older, the cost of insuring you increases, so less of your premium goes into the investment account. The money that goes into the account in the early years of your policy therefore grows. The cash value of your whole life policy is the amount you’d get if you decide to surrender it. Whole life insurance is so named because it’s designed to stay in force throughout your life.
Insurance Act, 1938 In 1938, with a view to protect the interest of insuring public, earlier legislation(1928) was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for detailed and effective control over the activities of insurer. For the first time in the history of insurance in India, the whole business was brought under a unified system of control and its structure strengthened by statutory regulations. Weaker elements were weeded out; indiscriminate promotion was checked and speculative insurance was eliminated. The best proof the soundness of the law was the effective check on large scale liquidations which had marred the name of insurance in the thirties. In due course, various amendments were made in the Indian Insurance Act 1938 in subsequent years to improve the regulatory mechanism. The Act of 1938, which in many respects codified and modernized the laws relating to insurance in the country, suggest the same noteworthy changes in regulation and organization of business. It was considerable step forward in the direction to envelop all forms of insurance.
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Malhotra Committee In 1993, the first step towards insurance sector reforms was initiated with the formation of Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra. The committee was formed to evaluate the Indian insurance industry and recommend its future direction with the objective of complementing the reforms initiated in the financial sector. Key Recommendations of Malhotra Committee Structure
• •
Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate. Competition
•
•
Private Companies with a minimum paid up capital of Rs.1billion should be allowed to enter the industry. No Company should deal in both Life and General Insurance through a single Entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state. Regulatory Body
• •
• •
• •
The Insurance Act should be changed. An Insurance Regulatory body should be set up.
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Controller of Insurance should be made independent. Investments
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Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company. Customer Service
•
• • •
LIC should pay interest on delays in payments beyond 30 days Insurance companies must be encouraged to set up unit linked pension plans. Computerisation of operations and updating of technology to be carried out in the insurance industry. Malhotra Committee also proposed setting up an independent regulatory body - The Insurance Regulatory and Development Authority (IRDA) to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. Insurance sector in India was liberalized in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. There is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. The opening up of the insurance sector has led to rapid growth of the sector. Presently, there are 16 life insurance companies and 15 non-life insurance companies in the market. The potential for growth of insurance industry in India is immense as nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be well below international standards.
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Regulator Of Insurance Industry In India : IRDA The Insurance Regulatory and Development Act of 1999 were set out as follows. “To provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto and further to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act, 1972.” The Act effectively reinstituted the Insurance Act of 1938 with (marginal) modifications. Whatever was not explicitly mentioned in the 1999 Act referred back to the 1938 Act? (1) It specified the creation and functioning of an Insurance Advisory Committee that sets out rules and regulation. (2) It stipulates the role of the “Appointed Actuary”. He/she has to be a Fellow of the Actuarial Society of India. For life insurers the Appointed Actuary has to be an internal company employee, but he or she may be an external consultant if the company happens to be a non-life insurance company. The Appointed Actuary would be responsible for reporting to the Insurance Regulatory and Development Authority a detailed account of the company. (3) Under the “Actuarial Report and Abstract”, pricing of products have to be given in detail. It also requires details of the basic assumptions for valuation. There are prescribed forms that have to be filled out by the Appointed Actuary including specific formulas for calculating solvency ratios. (4) It stipulates the requirements for an agent. For example, insurance agents should have at least a high school diploma along with training of 100 hours from a recognized institution.
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(5) Under “Assets, Liabilities, and Solvency Margin of Insurers”, the Insurance Regulatory and Development Authority has set up strict guidelines on asset and liability management of the insurance companies along with solvency margin requirements. Initial margins are set high (compared with developed countries). The margins vary with the lines of business. Life insurers have to observe the solvency ratio, defined as the ratio of the amount of available solvency margin to the amount of required solvency margin: (a) the required solvency margin is based on mathematical reserves and sum at risk, and the assets of the policyholders’ fund; (b) the available solvency margin is the excess of the value of assets over the value of life insurance liabilities and other liabilities of policyholders’ and shareholders’ funds. (6) It sets the reinsurance requirement for (general) insurance business. For all general insurance, a compulsory cession of 20% regardless of line of business to the General Insurance Corporation, the designated national reinsurer was stipulated. (7) Under the “Registration of Indian Insurance Companies”, it sets out details of registration of an insurance company along with renewal requirements. For renewal, it stipulates a fee of one-fifth of one percent of total gross premium written direct by an insurer in India during the financial year preceding the year. It seeks to give detailed background for each of the following key personnel: Chief Executive, Chief Marketing Officer, Appointed Actuary, Chief Investment Officer, Chief of Internal Audit and Chief Finance Officer. Details of sales force, activities in rural business and projected values of each line of business are also required. (8) Under “Insurance Advertisements and Disclosure”, details of insurance advertisement in physical and electronic media has to be detailed with the Insurance Regulatory and Development Authority. The advertisements have to comply with the regulation prescribed in section 41 of the Insurance Act, 1938. The Act of 1938 says, “No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property
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in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectus or tables of the insurer.” (9) All insurers are required to provide some coverage for the rural sector. It is called the “Obligations of Insurers to Rural Social Sectors”
Structure of Insurance Industry Historical Perspective (i) Prior to 1956 242 companies operating (ii) 1956 - 2001 Nationalisation – LIC monopoly player – Government control (iii) 2001 -- Opened up sector
Present Structure of Insurance Industry (a) LIC – Fully owned by Government (b) Postal Life Insurance • (ii) Private players 1. Bajaj Allianz Life Insurance Co. Ltd. 2. Birla Sun Life Insurance Co. Ltd. (BSLI) 3. HDFC Standard Life Insurance Co. Ltd. (HDFC STD LIFE) 4. ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU) 5. ING Vysya Life Insurance Co. Ltd. (ING VYSYA)
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6. Max New York Life Insurance Co. Ltd. (MNYL) 7. MetLife India Insurance Co. Pvt. Ltd. (METLIFE) 8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 9. SBI Life Insurance Co. Ltd. (SBI LIFE) 10. TATA AIG Life Insurance Co. Ltd. (TATA AIG) 11. AMP Sanmar Assurance Co. Ltd. (AMP SANMAR) 12. Aviva Life Insurance Co. Pvt. Ltd. (AVIVA) 13. Sahara India Life Insurance Co. Ltd. (SAHARA LIFE) 14. Shriram Sunlam • (iii) Other likely players – PNB Life Insurance, Reliance Life Insurance,
Life Insurance Corporation of India (LIC) The Life Insurance Corporation of India has been a national-builder since its formation in 1956. The performance of LIC has been exemplary and has been growing from strength be it customer base, agency network, branch office network, new business premium and the like. It has played a significant role in spreading life insurance widely across the country. True to objectives of nationalization, the LIC has invested the funds mobilized from policy holders for the benefit of the community at large. The other subsidiary companies under LIC are: Life Insurance Corporation (LIC) of India International – A joint venture offshore company promoted by LIC which commenced its operations in July, 1989 with the objective of offering policies denominated in US $ to NRIs residing in the Gulf. LIC Nepal – Formed in 2001 in joint venture with Vishal Group of Industries, Nepal. LIC Lanka – Formed in 2003 in joint venture with Bartleet Group of Companies, Sri Lanka
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LIC Housing Finance – Established in 19th June, 1989 in Dubai with the objective of providing long term finance for construction of houses or apartments. LIC Housing Finance Limited Care Homes – A wholly owned subsidiary of LIC Housing Finance which builds “Assisted Community Living Centers” for senior citizens.
2007Business performance in 2007-2008 1. 2. 3. 4. 5. Total Income Total Premium Income Total Policy Payments Total Life Fund Total Assets
{Rs. In Crores} Rs 2,06,363 Rs 1,49,706 Rs 57,623 Rs 6’86’616 Rs 8,03,820
The business performance for LIC in the last fiscal year (07-08) has been good compared to the fiscal year (06-07). There has been a significant growth in total assets and total income earned. Distribution Channels of Distribution Agent: Individual Agent The individual agent has been the bedrock and the lynchpin in the marketing of insurance, especially life insurance. The professional agent has been the strongest link between the life insurer and the customer. The professional agent has the onerous role of explaining the concepts, terms and conditions, benefits and privileges of the insurance contract. He has to analyze the financial requirements and risks faced by the customers and market insurance plans suited to the needs and means of the customers. All insurance companies, and life insurance companies in particular, have recognized the paramount importance of this channel. The number of agents has grown at a spectacular rate. The total number of agents on they roll is 11,03,047 as on 31.03.2007 as against 10,52,283 as on 31.03.2006.
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Agents: Corporate Agents : The number of corporate agents has grown in recent years. Corporate agent is a concept introduced with a view to taking advantage of the presence of a large number of entities with a sizeable client base, contacts and goodwill already operating in the market. With multi locations and a network of people assisting them, these entities have a different structure and purpose. Hence their existing network could be utilized to market insurance. The corporate agent could thus be defined as a person - meaning a firm or company formed under the Companies Act, 1956 or a banking company or a Bank/RRB or a co-operative society registered under the Co-operative societies Act, 1912 or a panchayat or a NGO/MFI covered under the Coop Societies Act or a NBFC registered with RBI or any other institution. They assist greatly in the spread of insurance through institutions. Brokers: Brokers: Brokers are permitted to sell products of more than one insurer. Brokers have been very predominant in the non life arena. Large risks require quite sophisticated expertise. Brokers have played a very key role in this area both in selling products and in servicing of Insurance claims. Brokers have now also entered the Life Insurance market. Bancassurance: Bancassurance is developing as an important channel in India. This is Bancassurance: due to the large reach and customer base of banks in both urban and rural areas in India. The persistency rate in Bancassurance, due to the continuous contact with the client is better than in other channels. The ease of payment of premium and the facility of maturity/claim payments through the bank account make it a customer friendly channel Referrals: Referrals: This is a new concept very similar to getting a prospecting list and leads to effect sales with customers. It is evident that in addition to banks, there could be various
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the
greater
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other entities which could act as a referral provider due to the large database of members/clients, like credit cardholders association members, society members etc. In short, such institutions could share or market their database to provide leads to the intermediaries to sell insurance products. The referral provider is not a licensed intermediary, but can be regulated by the insurance Regulator, through approval of the terms of the agreement, between the insurer and the referral provider. Marketing: Direct Marketing : In the new technological environment, new
innovative marketing systems have evolved. The use of inter-net, web based sales, e- marketing, telecalling, mobile SMS have made giant strides in reaching out to customers. This is an emerging channel which in future may grow in size and proportion of sales. This channel requires active regulation which should be on issues of transparency, disclosure, privacy, contract, TRAI guidelines etc. It would be necessary to give full complete information through soft copies of proposal forms, schedules, policies etc.
New Business Brought in by All Channels of Distribution : (1/4/2oo7 to 31/3/2008) (Individual Assurances) Policies ( in lakh) Composite Composite Growth Rate 375.90 -1.62 % Sum Assured ( in crore ) 2, 75, 457.65 -9.12 % First Premium Income (in crore) 43,812.86 10.80%
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Schemes Pension & Group Business & Social Security Schemes Achievement From 1.4.2007 to 31.03.2008 Pension & Group Schemes No. of New Lives Premium Income (Rs. In Crore ) 153.71 lac 10356.94 83% -9% Growth Rate Social Security Growth Schemes 113.67 lac 192.56 Rate 98% 91%
Business In Force as on 31.3.2008 Policies (in crore ) Individual Assurance Group Insurance (lives) 23.39 5.10` Sum Assured ( Rs. In crore) 17, 28, 679 3, 06, 711
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Span of Organization Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices and the corporate office. LIC’s wide are network covers 100 divisional offices and connects all the branches through a Metro Area Network. LIC has tied up with some banks and service providers to offer on-line premium collection facility in selected cities. 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, Ahmadabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policy holders, LIC has launched SATELLITE SAMPARK OFFICES. The Satellite offices are smaller, leaner and closer to the customer. The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future.
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Investment In Govt. & Social Sector As per the prescribed investment pattern approved by IRDA, the controlled funds are invested as follows:Not less than 50% is invested in Govt. Securities or other approved Investments. Not less than 15% is invested in infrastructural and social sector Investments. Not exceeding 35% in others to be governed by prudent exposure norms.
Investment In Govt. & Social Sector (Rs. in Crores)
Type of investment 31.03.06 01. 02. CENTRAL GOVT.SECURITIES 236959 58928 STATE GOVT.& OTHER GOVT.. GUARANTEED MARKETABLE SECURITIES Sub-Total (A) 03. INFRASTRUCTURE AND SOCIAL SECTOR INVESTMENT a) HOUSING b) POWER c) IRRIGATION / WATER SUPPLY & SEWARAGE d) ROAD,RAILWAYS,PORT&BRIDGES e) OTHERS Sub – Total (B) TOTAL As on 31.03.07 272498 64285 31.03.08 298157 89195
295887
336783
387352
19807 29740 8288 725 3954 62514 304002
22451 37881 7500 1516 4398 73746 358401
24325 41120 6649 1154 8774 82022 410529
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ASSET UNDER MANAGEMENT Asset Under Management is the total value of assets that a mutual fund, a hedge fund, or other portfolio manager manages and administers for itself and its customers. The year 2006-07 was a good year for LICMF. There has been all round improvement in the number of intermediaries , reach, number of collections and amount of collections. Total collections went up by 180% and number of redemptions were brought down by 16%. The Assets Under Management(AUM) rose from Rs. 5228.89 crores as 31/03/2006 to Rs. 9642.80 crores as at 31/03/07 showing a growth rate of 84.41% as against the industry growth of 40.83%.
Products: Products: They have in their basket more than 40 different plans catering to the differing needs of different segments of the society,covering a age group of 0-80 year-,basic insurance plans (whole life, endowment and money back), Term Assurance Plans, Pension Plans, Capital Market linked Plans, Health Plan etc. New products launched in 2007-08 1. Jeevan Bharti –I (Money Back Plan exclusively for Women) 2. Market Plus-I (Unit linked Pension Plan) 3. Money Plus-I (Unit linked Insurance plan) 4. Anmol Jeevan-I (Term Insurance Plan) 5. Child Career Plan & Child Future Plan (Children’s Plans) 6. Health Plus- (Unit Linked)
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Impact of the financial crisis on Life Insurance Corporation: crisis Even though the SENSEX Crashed from 21,207 on 08-01-2008 to 10,528 on 10-102008……….the people who had invested in LIC’ s did not suffer much loss as compared to other industries shares. Script/ Funds SENSEX Jayaprakash Ass Reliance Infra DLF Sterile Inds ICICI Bank Reliance Comm Tata Steel Tata Motors L&T Hindalco Grasim Inds Reliance Inds Tata power LIC Value of the Fund on 08.01.08 21207 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000 Value of the Fund on 10.10.08 10528 16483 20319 24479 26504 27304 29516 32238 38873 41044 42512 43431 50057 49429 89715 % Change in the Value -50.36 -83.52 -79.68 -75.52 -73.5 -72.7 -70.48 -67.76 -61.13 -58.96 -57.57 -56.57 -49.94 -50 .57 -10.28
A person who has invested Rs. 100000 in Jayaprakash Ass, the present value of that investment is Rs. 16493, which implies a loss 83.52%, while a person who invested Rs.100000 in LIC, today the value of fund is Rs. 89713 which shows a loss of 10.28%. LIC is a public sector insurer and a domestic investor. As such, they are not directly affected by the global financial crisis. However, the volatility in Indian financial market due to the uncertainty in global markets has affected returns they gt on their investments. But LIC has an indisputable record of prudently planning its investments and getting the maximum returns on the policyholders’ money.
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Awards Won Won Some of the recent awards received by LIC are 1. LIC has been ranked :” Number One Trusted Service Brand” in the Economic Times Brand Equity Survey for the year 2008 for the 5th consecutive year, with overall ranking across all categories going up from 27th to 12th. 2. Readers Digest “Trusted Brand”2008 in the platinum category. 3. SKOCH Challengers Award 2008 for our Micro Insurance Product Jeevan Madhur. 4. Customer & Brand Loyalty Award 2008 in the Life Insurance category from India times Mindscape. 5. Rated as the “Most Preferred Life Insurance Company of the year” at the CNBC Awaaz Consumer Awards 2007 third time in a row. 6. “Conferred Peacock Award “ for Excellence in Corporate Governance 7. Conferred Outlook Money NDTV profit-“Best Life Insurer Award 2007” 8. “Web 18- Genius of the Web award -2007 “For the best website in Insurance Category. 9. Adjusted the” Best Life Insurance Company of the year”- at the Second NDTV Profit Business Leadership Awards-2007. Summary The Life Insurance Corporation of India has been a nation-builder since its formation in 1956. The Corporation has deployed the funds to the best advantage of the policyholders as the community as a whole. Year on year LIC’s productivity and profitability provides shareholders with an improving dual return - as co-operative shareholders through a wider range of services and products and as investors in the business, with a useful return on capital and an increasing share price. The LIC investment strategy is very clear. It is based on their investment policy, Irda regulations, Insurance Act and the LIC Act. According to the guidelines, 50 per cent of the total investible funds must be in government securities - 25 per cent should be in central government securities, and up to 50 per cent in both state and central government securities. The market has come down by about 50 per cent from its peak in January, but the value of their investments have come down by only 15-20 per cent. For
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LIC, the situation has turned out to be a boon, as the public is now more biased towards public sector entities like them instead of investing in private companies.
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