LIC of India
The story of insurance is probably as old as the story of mankind. The same instinct that prompts
modern businessmen today to secure themselves against loss and disaster existed in primitive
men also. They too sought to avert the evil consequences of fire and flood and loss of life and
were willing to make some sort of sacrifice in order to achieve security. Though the concept of
insurance is largely a development of the recent past, particularly after the industrial era past
few centuries yet its beginnings date back almost 6000 years.
Life Insurance in its modern form came to India from England in the year 1818. Oriental Life
Insurance Company started by Europeans in Calcutta was the first life insurance company on
Indian Soil. All the insurance companies established during that period were brought up with the
purpose of looking after the needs of European community and Indian natives were not being
insured by these companies. However, later with the efforts of eminent people like Babu
Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives
were being treated as sub-standard lives and heavy extra premiums were being charged on them.
Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company
in the year 1870, and covered Indian lives at normal rates. Starting as Indian enterprise with
highly patriotic motives, insurance companies came into existence to carry the message of
insurance and social security through insurance to various sectors of society. Bharat Insurance
Company (1896) was also one of such companies inspired by nationalism. The Swadeshi
movement of 1905-1907 gave rise to more insurance companies. The United India in Madras,
National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore
were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in
one of the rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The
Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the
companies established during the same period. Prior to 1912 India had no legislation to regulate
insurance business. In the year 1912, the Life Insurance Companies Act, and the Provident Fund
Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium
rate tables and periodical valuations of companies should be certified by an actuary. But the Act
discriminated between foreign and Indian companies on many accounts, putting the Indian
companies at a disadvantage.
The first two decades of the twentieth century saw lot of growth in insurance business. From 44
companies with total business-in-force as Rs.22.44 crore, it rose to 176 companies with total
business-in-force as Rs.298 crore in 1938. During the mushrooming of insurance companies
many financially unsound concerns were also floated which failed miserably. The Insurance Act
1938 was the first legislation governing not only life insurance but also non-life insurance to
provide strict state control over insurance business. The demand for nationalization of life
insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a
bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. However,
it was much later on the 19th of January, 1956, that life insurance in India was
nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75
provident were operating in India at the time of nationalization. Nationalization was
accomplished in two stages; initially the management of the companies was taken over by means
of an Ordinance, and later, the ownership too by means of a comprehensive bill. The Parliament
of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life
Insurance Corporation of India was created on 1st September, 1956, with the objective of
spreading life insurance much more widely and in particular to the rural areas with a view to
reach all insurable persons in the country, providing them adequate financial cover at a
reasonable cost.
LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate
office in the year 1956. Since life insurance contracts are long term contracts and during the
currency of the policy it requires a variety of services need was felt in the later years to expand
the operations and place a branch office at each district headquarter. Re-organization of LIC took
place and large numbers of new branch offices were opened. As a result of re-organisation
servicing functions were transferred to the branches, and branches were made accounting units.
It worked wonders with the performance of the corporation. It may be seen that from about
200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year
1969-70, and it took another 10 years for LIC to cross 2000.00 crore mark of new business. But
with re-organisation happening in the early eighties, by 1985-86 LIC had already crossed
7000.00 crore Sum Assured on new policies.
Today LIC functions with 2048 fully computerized branch offices, 109 divisional offices, 8 zonal
offices, 992 satallite offices and the Corporate office. LICs Wide Area Network covers 109
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. LICs ECS and ATM premium payment facility is an addition to customer convenience.
Apart from on-line Kiosks and IVRS, Info Centres have been commissioned at Mumbai,
Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities.
With a vision of providing easy access to its policyholders, LIC has launched its SATELLITE
SAMPARK offices. The satellite offices are smaller, leaner and closer to the customer. The
digitalized records of the satellite offices will facilitate anywhere servicing and many other
conveniences in the future.
LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance
and is moving fast on a new growth trajectory surpassing its own past records. LIC has issued
over one crore policies during the current year. It has crossed the milestone of issuing
1,01,32,955 new policies by 15th Oct, 2005, posting a healthy growth rate of 16.67% over the
corresponding period of the previous year.
From then to now, LIC has crossed many milestones and has set unprecedented performance
records in various aspects of life insurance business. The same motives which inspired our
forefathers to bring insurance into existence in this country inspire us at LIC to take this message
of protection to light the lamps of security in as many homes as possible and to help the people
in providing security to their families.
Some of the important milestones in the life insurance business in India are:
1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started
functioning.
1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its
business.
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies are taken over by the central
government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a
capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to the Triton
Insurance Company Ltd., the first general insurance company established in the year 1850 in
Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of
general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and set minimum solvency margins
and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the
general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.
Objectives of LIC
Spread Life Insurance widely and in particular to the rural areas and to the socially and
economically backward classes with a view to reaching all insurable persons in the
country and providing them adequate financial cover against death at a reasonable cost.
Maximize mobilization of people's savings by making insurance-linked savings
adequately attractive.
Bear in mind, in the investment of funds, the primary obligation to its policyholders,
whose money it holds in trust, without losing sight of the interest of the community as a
whole; the funds to be deployed to the best advantage of the investors as well as the
community as a whole, keeping in view national priorities and obligations of attractive
return.
Conduct business with utmost economy and with the full realization that the moneys
belong to the policyholders.
Act as trustees of the insured public in their individual and collective capacities.
Meet the various life insurance needs of the community that would arise in the changing
social and economic environment.
Involve all people working in the Corporation to the best of their capability in furthering
the interests of the insured public by providing efficient service with courtesy.
Promote amongst all agents and employees of the Corporation a sense of participation,
pride and job satisfaction through discharge of their duties with dedication towards
achievement of Corporate Objective.
Theory Of Large Numbers
In probability theory, the law of large numbers (LLN) is a theorem that describes the result of
performing the same experiment a large number of times. According to the law, the average of
the results obtained from a large number of trials should be close to the expected value, and will
tend to become closer as more trials are performed.
The LLN is important because it "guarantees" stable long-term results for the averages of
random events. For example, while a casino may lose money in a single spin of
the roulette wheel, its earnings will tend towards a predictable percentage over a large number of
spins. Any winning streak by a player will eventually be overcome by the parameters of the
game. It is important to remember that the LLN only applies (as the name indicates) when
a large number of observations are considered. There is no principle that a small number of
observations will coincide with the expected value or that a streak of one value will immediately
be "balanced" by the others
Insurance companies uses the Law of Large Numbers and probability to determine the chance
of an event occurring. If the chance of someone having a car accident is one in one hundred,
then insurance companies collect premiums from 100 people to pay the claim that one driver will
incur. This is called spreading the risk. It is important for insurance companies to adequately
gauge the hazards (items that increase the chance of loss) of a risk before insuring it. If they
dont research and know a business or the habits of an individual and they guess wrong in
predicting the chance of something happen the insurance company could lose money. If they do
this often enough then the company suffers.
The Law of Large Numbers means the larger the number of risks (e.g. cars or
homes
etc.) that an insurance company insures the closer they will be able to predict the actual results of
the chance of an accident occurring. Of course it is still up to chance but past experience is a
good indicator of the future.
In statistical terms, a rule that assumes that as the number of samples increases, the average of
these samples is likely to reach the mean of the whole population. When relating this concept to
finance, it suggests that as a company grows, its chances of sustaining a large percentage in
growth diminish. This is because as a company continues to expand, it must grow more and more
just to maintain a constant percentage of growth.
ExampleAs an example, assume that company X has a market capitalization of $400 billion and company
Y has a market capitalization of $5 billion. In order for company X to grow by 50%, it must
increase its market capitalization by $200 billion, while company Y would only have to increase
its market capitalization by $2.5 billion. The law of large numbers suggests that it is much more
likely that company Y will be able to expand by 50% than company X.
The law of large numbers makes logical sense. If a large company continues
to grow at 30-50% every year, it would eventually become bigger than the
economy itself! Obviously, this can't happen and eventually growth has to
slow down. As a result, investing in companies with very high market
capitalization can dampen the potential for stock appreciation.
