JAMSHEDPUR CO-OPERATIVE COLLEGE, JAMSHEDPUR

(A constituent unit of Kolhan University, Chaibasa)

Working and Regulatory Framework of

Life Insurance Corporation of India
DISSERTATION

Submitted for the partial fulfilment of the Degree of

MASTER OF COMMERCE

In the

Faculty of Commerce

Jamshedpur Co-operative College,

Jamshedpur

Under the Supervision of

Ashok Kumar Rawani, Asst. Prof.

Faculty of Commerce

Jamshedpur Co-operative College

Jamshedpur

Submitted By

Name: Kajal Kumari

Class & Roll No.: M.com, 64

Session: 2017-19

University Registration No. : KU1721615/2017

University Exam Roll No. : 180606448565

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 CERTIFICATE

This is to certify that the dissertation report entitled “Working and Regulatory
Framework of Life Insurance Corporation of India” submitted to the Faculty of
Commerce, Jamshedpur Co-operative College, Jamshedpur (Kolhan University,
Chaibasa) in partial fulfilment for the award of the degree of Master of Commerce, is a
record of bona fide work carried out by Ms. Kajal Kumari, University Registration No.
KU1721615/2017, University Roll No. 180606448565 under my supervision and
guidance.

____________

Date: Ashok Kumar Rawani

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 CONTENTS

Certificate of Supervisor………………………………………………………………... 2

Acknowledgement……………………………………………………………………… 4

Chapter I

1.1 Introduction………………………………………………………………… 5

1.2 Objectives of LIC…………………………………………………………... 12

1.3 Mission/ Vision & Board of Directors……………………………………… 14

1.4 Hypothesis…………………………………………………………………... 14

Chapter II

2.1 Review of literature………………………………………………………… 16

2.2 Statement of Problem………………………………………………………. 18

2.3 Objectives of The Study……………………………………………………. 24

2.4 Significance of The Study………………………………………………….. 24

Chapter III

3.1 The IRDA Act, 1999………………………………………………………... 25

Chapter IV

4.1 Data Collection, Result and Interpretation…………………………………30

4.2 Findings and Suggestions………………………………………………….. 32

4.3Conclusion…………………………………………………………………. 38

4.4 Reference…………………………………………………………………..38

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 ACKNOWLEDGEMENT

I am indebted to Prof. Dr Sanjeev Kumar Singh, Head of department of commerce, Jamshedpur Co-
operative College, Kolhan University for their constant encouragement and blessings. I would like to
thank all the faculty members and staff of the faculty of commerce who made this work possible by
assisting me in so many ways.

I have to offer my sincere thanks to the following organizations for supplying me valuable research
material and reports (Life insurance Corporation of India, Jamshedpur division).

My special thanks are due to my guide Prof. Ashok Kumar Rawani, for being supportive at every
moment and help in many ways during the course of study. I also acknowledge the encouragement and
help received from my family and friends for their moral support and best wishes.

The libraries attended by me deserve my sincere thanks for their invaluable cooperation.

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 CHAPTER I

1.1 Introduction

The state sponsored Life Insurance Corporation (hereinafter referred to as LIC) of India was the sole
player in the Indian life insurance market before 2000. With the entry of private players, LIC has lost
considerable market share to private players although both market size and insurance premia, are on the
rise. In India life insurance products were/are bought more as investments for tax savings rather than
risk protection. The brand preference in this category has never been explored in depth. It has been
largely assumed that life insurance is an unsought product and customer satisfaction a paradox. The
proposition that has been examined is that customer satisfaction can provide business opportunities in
this under penetrated market. It can be a vehicle for identifying new avenues for cross selling, up selling
and referrals. It also attempts to identify the dimensions of service quality which are important to a
customer. SERVQUAL scale was used to discern the different dimensions of service quality and mean
scores were used to find out if there is any gap between customer expectations and perceptions. Primary
research was used to collect data on RATER scale among LIC customers in Delhi. (Timira Shukla,2011)
Retaining a customer is four time cheaper than acquiring a new one. The retention of the customers
is of utmost importance in the insurance industry in specification. Insurance business is of the
relationship building process. were one customer leads to the building of other one. A satisfied
customer is like a word of mouth advertisement for the company. The needs of the existing customers
should be identified and satisfied well rather than only concentrating at the new accounts. All possible
measures needs to taken to retain the customers as it is lesser costlier as well as provides stability to
thebusiness.
It wasn’t too long back when the good old endowment plan was the preferred way to insure oneself
against an eventuality and to set aside some savings to meet one’s financial objectives. The traditional
endowment policies were investing funds mainly in fixed interest.

Government securities and other safe investments to ensure the safety of capital. Thus the
traditional emphasis was always on security of capital rather than yield. However, with the inflationary
trend witnessed all over the world, it was observed that savings through life insurance were becoming
unattractive and not meeting the aspirations of the policyholders. The policyholder found that the sum
assured guaranteed on maturity had really depreciated in real value because of the depreciation in the

5
value of money. The investor was no longer content with the so called security of capital provided
under a policy of life insurance and started showing a preference for higher rate of return on his
investments as also for capital appreciation. It was, therefore found necessary for the insurance
companies to think of a method whereby the expectation of the policyholders could be satisfied. The
object was to provide a hedge against the inflation through a contract of insurance. Decline of assured
return endowment plans and opening of the insurance sector saw the advent of ULIPs on the domestic
insurance horizon. Today, the Indian life insurance market is riding high on the unit linked insurance
plans.
At national as at individual level the excess of income after consumption level savings as funds for
investment. Surplus funds can be invested in either real asset or in financial assets. Purpose of
investment is to protect one’s wealth against erosion of value due to inflation and to earn risk adjusted
return. There are three motives which drive people to purchase insurance products in India. _ Desire to
cover risk _ Tax benefit _ Saving motives It is argued that in this paper that in the changing scenario
for the insurance sector there is going to be a good opportunities for insurance sector to expand its
market base. For this purpose there is need to improve the features of the insurance products to make
them more liquid or short term schemes could be increased. It is shown that although rewards implied
by the insurance products particularly by the tax benefits are quite close to those observed in banks and
small saving scheme of the governments. The performance of mutual funds which come in many
different types is found to be reasonable compared to the risk involved. The survey indicates that it
may not be very difficult to win over the confidence of small investors towards insurance policies if
good marketing techniques are adopted to educate the targeted population about the uses of insurance
policies from investment point of view.
Insurance is one product which is not demanded by a customer, but supplied to him by massive
education and drive marketing. Insurance ought to be bought not sold. The new concept of demand side
innovation focuses more on customer’s social and economic reality striving to deliver maximum value
to the customer at an affordable price. Therefore, when the customer becomes the primary focus
including him in the invention process becomes mandatory. But, there are certain areas of insurance
innovations where the customers cannot be involved. A case in point is the recent insurance product
invention called Telemetric Auto Insurance. It’s a product by the Progressive Auto Insurance, which
monitors the driving behavior of its auto insurance policyholder. The new machine grabs information
and automatically transmits it to the insurer. This information received is regularly analyzed to
judicially conclude the intensity of risk the person is exposed and the corresponding premium he is
eligible to pay. This is an example of supply side innovation, where it is strictly not possible to include
the customer in the innovation process. Though, there are instances where the customer is involved in

6
the testing phase, his inclusion in the conception phase makes an innovation demand-driven.
The findings of the study demonstrate that five-factor structure as proposed by Suresh Chandar et
al. (2001) has been refined to seven factor construct (consisting of 34 items) representing Proficiency;
Media and presentations; Physical and ethical excellence; Service delivery process and purpose;
Security and dynamic operations; Credibility; and Functionality. Besides, the study also investigates
the relationship between each of the generated service quality dimensions and customers overall
evaluation of life insurance service quality. It reveals that among these seven factors, three viz.,
Proficiency; Physical and ethical excellence; and Functionality have significant impact on the overall
service quality of Life Insurance Corporation of India. Managerial implications and directions for
further research have also been discussed.
Sales personnel by providing enough information to the customers, enables them in forming their
assessment about the products or services, which ultimately becomes customer value. Customer
satisfaction and acumen orientation significantly influence the future business opportunities and if the
salespersons are able to foster their relationships with the clients, clients will be more satisfied and more
willing to trust, and thus secure the long term demand for the services (Tam and Wong, 2001).
According to Crosby et al. (1990) the lack of concreteness of many services of which insurance is
one, increases the value of the persons responsible for delivering them. Putting the customer first, and,
exhibiting trust and integrity have been found essential in selling insurance (Slattery, 1989). In
marketing life insurance, insurance agents are often considered to be marketing complex services (Nik
Kamariah, 1995). Insurance sales agents fully understand the customers’ needs and requirements as
well as build a trusting relationship between themselves and their clients to promote long-term
mutually beneficial relationship (Crosby et al., 1990).
The agent has to deal with the dilemma between making sales (self interest) and providing service
(customer benefit) (Oakes, 1990). Customers are, therefore, likely to place a high value on their agent’s
integrity and advice (Zeithaml et al.,1993).
Insurance agents who sell policies are not employees of the insurance companies. Rather, they
work on a commission basis and thus are motivated by the volume of sales made (Annuar, 2004). This
is because; insurance agents are involved in long-term commitment and a continual stream of
interaction between buyer and seller. After the sale, agents also provide follow-up service and help
customers make policy changes in response to changing needs (Noor and Muhamad, 2005).
The company – agent link is stronger than the agent – company link, which in turn, is stronger than
the customer – company link. Customer loyalty depends on how strong the agents’ link with the
customer is (Balachandran, 2004). Agents are the indeed ambassadors and the backbone of the
insurance industry (Malliga, 2000).

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 Life Insurance Corporation of India (LIC), the capital intensive business, provides the most
important financial instrument to customers aimed at protection as well as long term savings. The
Corporation reaches out to the people through the main traditional route of the agency model for the
selling processes of the numerous complex need-based products. The gigantic superstructure that LIC
has evolved into over the years is in fact built on the singular efforts of the salesperson, the primary
contact point of the customers who motivates and persuades them to buy an insurance product. Such a
salesperson, a sole player must display highest degree of integrity and ethics to foster a trusting
relationship with his clients who would be more than satisfied and willing to be buyers. At present, LIC
has around 2.70 million agents and they represent more than 60 percent of the life insurance business
(www.licindia.com; Lepaud, 2008). They concentrate their efforts on seeking out new clients and
maintaining relationships with the old ones. If policy holders experience a loss, agents help them to
settle their insurance claims.
The liberalization of Indian economy ushered in an era of competitive marketing leading to the
radical changes in the entire gamut of products and services. The service sector, hitherto limited in
nature and scope, changed into an aggressive mode appropriating the front stage touching almost every
sphere of human activity, viz., banking, insurance, information technology, welfare etc. and accounted
for approximately two-thirds of worldwide GNP right from the beginning of the twenty first century
(Kara et al.,2005).
Delivering quality service is considered an essential strategy for success and survival in today's
competitive environment (Dawkins and Reichheld, 1990; Parasuraman et al., 1985; Reichheld and
Sasser 1990; Zeithaml et al., 1990). In the literature, the construct of quality is conceptualized based on
perceived service quality (Hishamuddin et al., 2008).
Perceived service quality is defined as global judgment, or attitude, relating to the superiority of the
service (Parasuramanetal.,1988).In the huge service sector,insurance sector is one of the most
important entities which has been growing relatively fast in India. At present there are twenty three
players in the Indian life insurance industry out of which Life Insurance Corporation is one of the
leading public companies, holds largest number of policies in the world to suit different financial
requirement of an individual. With a greater choice and an increasing awareness, there is a continuous
increase in the customers’ expectations and they demand better quality service. Therefore, to sustain in
the market, service quality becomes a most critical component of competitiveness for Life Insurance
Corporation of India. Although, by providing quality services to its customers, the Corporation can
differentiate itself from other service firms and will able to improve its profitability. The purpose of the
present study is to measure customers perception towards service quality of Life Insurance
Corporation of Indiaby applying a framework developed by Sureshchandar et al. (2001). Moreover, the

8
study also identifies the relationship between each of generated service quality dimensions and
customers‟ overall evaluation of service quality in India.
In spite of the growing importance of service quality (Qualls and Rosa, 1995), it remains an
abstract and elusive construct that is difficult to define and measure (Brown and Swartz, 1989; Carman,
1990; Crosby, 1979; Gravin, 1983; Parasuraman et al., 1985, 1988; Rathmell, 1966). In the empirical
literature, there are many alternative service quality models and instruments developed for measuring
service quality. Sasser et al. (1978) suggested three different attributes (levels of material, facilities,
and personnel) all apparently dealing with the process of service delivery. Gronroos (1984) argued that
service quality can be divided into two generic dimensions: technical quality (what is provided) and
functional quality (how the serviceis provided), with image quality (the organization’s reputation for
quality) mediating the impact of these two dimensions on overall perceived quality.
Subsequently, Gronroos (1990) identified six specific dimensions viz., professionalism and skills,
reliability and trustworthiness, attitudes and behavior, accessibility and flexibility, recovery, and
reputation and credibility, on which service quality could be measured. However, these dimensions
have not been subject to any rigorous empirical testing, although a number of studies have used scales
based on such principles (e.g., Lehtinen and Lehtinen, 1991). Lehtinen and Lehtinen (1982) discussed
three dimensions viz., physical quality, involving physical aspects; corporate quality, involving a
service firms image and reputation; and interactive quality, involving interactions between service
personnel and customers.
In the mid-1980’s one of the most systematic research programs in service quality was conducted
by Parasuraman et al. (1985). They revealed ten dimensions viz., tangibles, reliability, responsiveness,
competence, courtesy, credibility, security, communication, understanding, and access in the original
model of service quality. But in the subsequent study of Parasuraman et al. (1988), these ten
dimensions were condensed into five viz., tangibles, reliability, responsiveness, assurance, and
empathy. This led to the development of a 22-item SERVQUAL scale for measuring service quality.
According to the SERVQUAL scale, service quality can be measured by identifying the gaps between
customers’ expectations of the service to be rendered and their perceptions of the actual performance of
the service.
Since most insurance companies are not adequately equipped to help their agents deal with
customer centered problems CRM insurance enables insurance organizations to survive in a tough
economic climate by using the data the insurance company has on the existing customers and then use
it to increase the level of profitability. It manages to enhance customer relationships based on
customer's unique requirements. CRM enables customers themselves to do research on products, have
answers to their questions etc. In addition to this policyholders can check their claim status, change

9
their account information, submit complaints etc. Insurers find that CRM is assisting them in their
marketing efforts as well through a comprehensive understanding of the client base. CRM aids the
insurance companies by ensuring that campaigns are more affective.
Insurance is basically a customer-focused concept selling business where a policy is being sold to
the customer through appropriate channel of distribution. In the present days, agents and banks are the
two widely and important source of distribution to sell Insurance Products. Banc assurance was a
completely unknown insurance distribution channel in India when the insurance sector opened up a
decade ago. Today, it is expected to generate 40 per cent of private insurers’ premium income by 2012,
which is significantly higher than the current 25 per cent to 28 per cent. The shape of the Insurance
Industry is being changed by developments in distribution. It is the distributor who makes the
differences in terms of product quality, customer services in terms of after-sale and claim settlement.
Multi-channel distribution and marketing of insurance products will be the smart strategy for the Indian
market. The size of the country, a diverse set of people combined with problems of connectivity in
rural areas, makes insurance selling in India a very difficult proposition. Life insurance companies
require immense distribution strength and tremendous manpower to reach out to such a huge customer
base. Huge uninsured Indian market offers abundance future scope for the growth and expansion of
banc assurance.
Anuja Banerjee (2009) in her article studied the concept of Banc assurance and its role in Insurance
Industry. Banc assurance means selling insurance products by banks through their distribution channels
has become one of the major Para-banking activities of the banks. If marketing of insurance products by
banks is done efficiently and ethically, than it ensures a win- win situation for all parties concerned, the
bank, the insurance company as well as the customer. There is a large potential and future development
of Banc assurance in India and many Insurers finding it as a attractive and profitable form of distribution
channel for distribution of their products.
Andhra Business Bureau (April 2010) in an article titled Banc assurance to touch 40 percent of
premium income by 2012. Based on Towers Watson India Banc assurance Benchmarking survey 2009-
10, it is expected that that banc assurance would generate 40 per cent of private insurers‟ premium
income by 2012, Bright prospects for bank distribution in India, given the impressive branch banking
architecture that reaches every part of the country and touches every economic segment of the
population.
Gupta. M May (2005), published in monthly Insurance World Magazine, “Banc assurance: The
Buzzword in Insurance”, has clearly highlights significance of banc assurance for Insurance Industry in
India and strategies to popularize the tool for betterment of Indian economy. Jay Narayan in IRDA
Journal October 2008, Volume VI, No. 10, published an article which emphasis on role of

10
Intermediaries that has a key role to play in the success of Insurance Business. Selling of life Insurance
products largely depends on the skill and efficiency of the distributor. The role of agent is very vital as
compare to other forms of marketing channels like brokers, corporate agents and banc assurance etc.
Banc assurance emerging as a new form of distribution channel where banks performed role of
intermediary and sell policies directly to the customers.
Kumar (2006), Banc assurance-Opportunities and Challenges in India, First Edition, Hyderabad
ICFAI publication has clearly mentioned in his book that how banc assurance will be beneficial for
banks, insurers and customers and also present challenges and opportunities of banc assurance in India.
He identified cultural differences between banks and insurance companies could pose a major
challenge to the growth of banc assurance. Large customer base and people trust on bank is the main
opportunity for the banks as a distribution channel for insurance companies.
M. Rajkumari (2007) in the paper titled “A Study on Customers' Preference towards Insurance
Services and Banc assurance” examined the awareness, satisfaction and preferences of customers
towards various Insurance services and banc assurance. The study has been undertaken by the
researcher in order to identify the customer's attitude towards purchase of insurance products and also
their knowledge on the banc assurance formats available through banks. He also gave suggestions to
improve customer awareness on banc assurance and performance of banks in selling insurance policies.
Pandey. N (2008) in his Dissertation report titled Banc assurance as a strategic management tool
has explained the present status of banc assurance and how it is gaining world- wide acceptance and
why in an Indian Insurance Industry it is seeing as a strategic management tool.
S Krishnamurthy, S V Mony, Nani Jhaveri, Sandeep Bakhshi, Ramesh Bhat and M R Dixit (2005),
in the paper titled, Insurance Industry in India: Structure, Performance and Future Challenges, clearly
explained the status and growth of Indian Insurance Industry after liberalization and also presents
future challenges and opportunities linked with the Insurance. Insurance is the backbone of country’s
risk management system and influence growth of an economy in several ways. Penetration of Insurance
largely depends on availability of Insurance products, insurance awareness and quality of services. The
future growth of this sector will depend on how effectively the insurers are meeting the expectations of
their customers and able to change the perceptions of the Indian consumers and make them aware of
the insurable risks. The paper has also drawn attention on emerging structure, role of banc assurance,
agents and customer services in the success of life insurance business.
The giant public sector life insurance company in the study area with their thick infrastructure
facilities and network of branches enjoyed a monopoly status in spite of the competition with private
players on the basis of their service quality. The opinion survey with the policyholders also brings to
the fore that the LIC has served them well in regard to dissemination of product knowledge, issue of

11
policies, after sales service before and after claim even though a slight discontent is reported by
minority.

1.2 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.

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 1.3 Mission / Vision

Mission
Ensure and enhance the quality of life of people through financial security by providing products and
services of aspired attributes with competitive returns, and by rendering resources for economic
development.

Vision
A trans-nationally competitive financial conglomerate of significance to societies and Pride of India.

1.3 Board of Directors

Members on The Board Of The Corporation

 Shri. M R Kumar, Chairman, LIC of India
 Shri. T.C. Suseel Kumar, (Managing Director, LIC of India)
 Shri Vipin Anand Managing Director, LIC of India
 Shri. Girish Chandra Murmu, Secretary(Expenditure), Department of Financial Services,
GOI
 Ms. Padmaja Chunduru, MD & CEO, Indian Bank
 Shri. Bimalendu Chakrabarti,Non-Official Member
 Shri. R N Chaturvedi, Non-Official Member
 Shri. R.Chandrasekaran, Non-Official Member

1.4 Hypothesis

The study proposes t o v e r i f y the following hypothetical prepositions:

1. In a country like India insurance sector develops as saving channels that can produce
very large amount for the developmental programs of the country.
2. Since life insurance sector has lifelong contacts with people, it acts as a tool to
mobilize savings; functions as financial intermediary and at time also indulge in direct investment.
3. In developing economies life insurance sector plays an important role in supplying

13
the funds for relatively larger projects.
4. In our country the opening up of private sector for insurance companies may result
into cut-throat competition but the balance will remain undisturbed. The quality of insurance will not
get affected and the existing Indian companies will not lose revenue in absolute numbers.
Despite the threat posed by private players, the trend towards liberalizing the insurance industry is
now irreversible.

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 CHAPTER II
2.1 Review of Literature

Mishra and Das (1977) highlighted that insurance is an essential service, which a welfare State
must provide to its people and the State must assure the responsibility of rendering this service to one
and all. Anurag (2000) suggested that life insurance products could become source of long-term
contractual savings. Sonig (2001) has observed that many developing countries also fear that
subsidiaries of foreign companies may transfer much of the premium income back to their head-
quarters, a fear which was an important motive for the establishment of domestic companies.
Anuroop Singh (2000) pointed out that Experience in Life Insurance business in other markets has
shown that actual investment in a three to five year span is normally at least twice the initial equity.
Usha (2004) observed that under the Section 64 UMH of Insurance Act 1938, IRDA has been
conferred the power to direct payment of claims. But, the IRDA’s, power to adjudicate has very
limited scope. She felt, there is a need to establish a full-fledged grievance redressal at the Centre as
well as the States to look into the problem. Meder (2001) observed that deregulation will make the
insurance market too competitive, resulting in rates that may not be sustainable. According to an
observation made by UNCTAD in (1993) the opening of markets to foreign companies would hardly
bring about better services and/or prices for domestic consumers, as in smaller insurance markets
there is a high probability that strong foreign insurers may enjoy a dominant market position. The
initial low premium rates offered to penetrate the market may soon give way to oligopolistic or
monopolistic pricing, and consumers may not be better than before. With regards to regulation of
insurance sector Ansari (2000) observed that the regulatory approach being charted out is forward
looking consultative, consistent and in line with international best practices. Bodla and Garg (2003)
in their work on insurance procedures identified the problems of insurance companies in settling the
death claim. Palande and Shah (2003) gave the overall problems relating to early claim settlement by
LIC of India. Sandhya Rani Mahapatra and Sovan Kumar Patnaik (2007) observed that through the
investment the LIC has been providing solid support to social sector activities like housing,
electrification, drinking water etc.

15
 2.2 Statement of Problem
Empirical studies have great potential, for they lead to inductions and deductions. Thus,
research enables one to develop theories & principle, on the one hand and to arrive at
generalizations the others. Both are aids to problem solving. As research is based on observations
and empirical evidences, it improves knowledge and understanding, as well as decision-making,
skill and ability gathering primary data for analytical purposes or using secondary data for first
hand investigation should be involved in research. It stimulates the process of understanding on the
one hand and deepens the insight on the other. Thus, managerial efficiency increases. Moreover, a
systemic research involves formalities and procedures and hence the decision maker gets sufficient
time for postponing decisions if he desires to do so in certain circumstances. On such occasions
research can be blessings and disguise.

To generalize research in humanities can fulfill the following general objectives:

i. Decision-making objectives.

ii. Project objectives.

iii. Market objectives.

iv. Controlling objectives.

v. Economic & business environmental.

vi. Profit objectives.

vii. Product development objectives.

viii. Innovation objectives.

ix. Promotional objectives.

x. Customer satisfaction objectives.

Obviously, research has unlimited scope in business organization. It has already being
pointed out that decision making is considerably influenced by research in the relevant area, while
the project objectives stands for the role played by research in project identification, feasibility and
project implementation. There is corporate policy for any organization, which is linked with the
corporate objectives and organizational philosophy, culture and climate.

16
 After a considerable period of hibernation, the insurance industry has entered into a new era
of rapid expansion, and the reform pound. A profound change there in the passes of the IRDA has
initiated this process that leads to positive signals to the word. The journey from private sector to
nationalization and back, to the entry of private insurers has being quite an eventful one and makes
an interesting story. The present research is an attempt to analyze the developments & issues that
are responsible for the emerging trends in the life insurance corporation of India. The researcher
would also appraise the impact or IRDA in LIC of India in the present study.

As research findings influence corporate policy, it has conspicuous role in shaping

organizational philosophy, culture and climate. Research is bound to through some light on risk
and uncertainties, which in turn underscore the role of research in policy formulation and decision
making. The element of personal judgment plays a less critical role until the manager is able to rely
almost completely on standard formula or set of rules when arriving at routine decisions.

Research facilitates the formulation of a standard formula enabling the executives to rely
moderately on personal judgment, especially at the middle and lower levels. Decision making
cause for alternative courses of action, and in identifying alternatives managerial researcher play an
important role.

It can be seen that insurance in India has had a long and chequered history. It had its roots in the
British regime and continued with the practices developed then; keeping pace with the changing
times is a major challenge for the industry. On the one hand, the industry grew enormously, but on
the other, its spread was limited to certain areas and to certain sections. With the result that a large
mass of people remains bereft of insurance cover. In the absence of effective control, certain
malpractices crept into the business which was, therefore, nationalized. But even in the nationalized
set-up, certain shortcomings cropped up which persuaded the govt. to favour liberalization and
introduction of competition.

Since the early fifties or thereafter the developing countries started central planning as a tool to
speed up the growth processes in the economy. In the initial stages the govt. intervened through strict
controls to foster developments in all sectors including insurance but after its initial success the flaws
and drawbacks of centralized planning and interventionist strategy surfaced, and over period of time,
there was a swing in policy toward liberalization. This ushered in era of reforms in all sectors in most
countries of the worlds. India included, with the main objective of accelerating the pace of
developments.

In India, where the state sector had become the mainstay of the economy, this process was

17
unfortunately confined mostly to the manufacturing sector. Some changes no doubt were introduced
in two sub-segments of the services sector, viz, the banking and stock markets, but precious little in
insurance. Naturally, there was a general expectation that in the insurance industry too, competition
would be promoted, if full privatization was not possible.

The report of the Committee on Reforms in the Insurance sector initiated the debate in 1994 with
regard to the reforms in that sector. After its recommendations were accepted by the Govt. in
principle, change became imperative and implied structural reforms, change in procedures and
practices and most importantly, attitudinal change, disturbance in established inter-relationships
among different players, and change in the structure of power centers. For the public sector, these
became sensitive issue and involved questions of delegation of authority, dismantling of artificial
control, barriers etc. However, even if change meant offending some vested interests, whichever
instruments were likely to produce the desired result, were the ones which India also had to adopt.
Deregulation, globalization and privatization are the routes that were found to have been successful
in many parts of the world. Accordingly, India too, has opted for these routes.

As far as India is concerned, some of the important factors leading to opening up of this sector
domestically and externally can be listed as follows:
 The global context.

 India’s initiatives in other sectors.

 Strengths and weaknesses.

 Dismantling restrictive barriers.

 Positive effects of competition.

 Benefits of globalization.

 Need for larger resources for infrastructure development.

 Need to spread insurance cover wider.

 Limited choice available to the customers.

 Competition favored by the customers.

Insurance is a business of large numbers and generates huge amounts of funds overtime, making
its financial muscle very strong.

18
 These funds arise out of policyholder’s funds in the case of life insurance, and technical and free
reserves in the non-life segment. The time lag between the procurement of premium and the payment
of claim provides an interval during which the funds can be deployed to generate income. The power
of the sector is evident from the fact that insurance companies are among the largest institutional
investors in the world. Assets managed by insurance companies are estimated to account for over 40
percent of the world’s top 100 asset managers. In view of this fact, the investment function has a
crucial role to play.

In life insurance although there was no element of compulsion to buy insurance, whoever needed
it had only one supplier to fall back upon. Therefore, the market network of Indian insurers though
extensive, remained weak in terms of efforts.

With the insurance industry in India shedding its monopolistic character, its market dynamics are
changing fast. The expected active presence of even more players, besides those who have already
entered the scene, will have a tremendous impact on the marketing policies of all players. Marketing
is now emerging as a crucial function and will, henceforth, have to be founded on sound and
substantial market research.

By its very character, the attention of the service industry has primarily to be centered on
marketing and customer service. Such a strategy cannot be formulated in isolation and all the major
elements of the organisation, viz, structure, systems, processes, staff, skills, and managerial styles,
have to be taken into account while finalizing it. Other consideration that are influencing the strategy
include the following-identification of the customer, his need, the features of a product or a service
that he values; and the extent to which he is willing to pay for those features. In the initial years of
operation, the strategy would be to emphasize brand building, customer education, customer
segmentation, and product design/packaging.

Unless the nationalized insurance entities reform their marketing set-up and strategies, flight of
business, especially in the non-life sector cannot be totally ruled out. The areas of their weakness are
providing opportunities for the new players, and hence it is important for the industry in the public
sector to pay special attention to these aspects. Corporate clients, for obvious reasons, already extract
the best service and discounts, but medium and small industries and individuals, who feel neglected,
will surely look for better service and new products. Unfortunately, despite these clear signals, no
significant improvement has been noticed in the nationalized sector.

In this sector, market considerations will dictate even structural changes. Most of the present
policies, procedures, practices pertaining to marketing were borrowed from the West. Many of the

19
covers are also modeled on the pattern of products available in the However, in the changing market
conditions, the Indian industry will be compelled to develop its own models, incorporating sufficient
flexibility.

The marketing of insurance has some unique features. It has to identify uncertainties in the lives
of individuals and groups and in the operations of an economic system and offer suitable insurance
covers for them. The requirements of different groups of insurance seekers will be different. Thus, a
couple with a dual income because both husband and wife are working, and have grown up children
has significantly different insurance needs from those of a young couple just starting out in life.
Individuals and families need covers to sustain their standard of living upon death or disablement of
the breadwinner. They may also require insurance linked saving with reasonable return to take care
of their consumer needs, old age and some periods of uncertainly in their lives. Social regulations
require employers to secure the lives of their employees by obtaining group life insurance covers
forthem.

20
 2.3 Objectives of The Study

The present study is an attempt to analyze contributions of LIC for socio economic development
in India in the era of economic reform. The dimensions of these broad objectives are:

i. To discuss the interface between insurance and human welfare.

ii. To examine the growth and diversity of LIC during the period of study.

iii. To assess the overall working and performance of LIC.

iv. To analyze the contribution of LIC to social sector

development in India.

v. To make an appraisal of different insurance plans undertaken by LIC in

order to benefit the people living below poverty line.

vi. To examine the role of agents in mobilizing funds for LIC particularly

in the rural sector.

vii. To study the important provisions of IRDA Act in view of the socio-

economic development of the people.

2.4 Significance of the Study

The scope of the study covers the role of LIC to develop the components of social sectors like
education, health, electricity, water supply development etc, in India. The role of LIC in the
economic development like, capital formation, contribution to GDP, investment pattern etc has also
been covered. In addition the analysis of the growth, development, investment pattern and various
activities of LIC also come within the scope of the work. The territorial coverage has been taken as
the country as a whole, because specific data relating to particular zone, Divisions and Branches are
not available. The period of study spreads over last one decade from 1997 to2007.

21
 CHAPTER III
3.1 The IRDA Act, 1999

The IRDA Act 1999 was passed, by Parliament in Dec. 1999 by which the Insurance Act 1938
and Life Insurance Corporation Act, 1956 and General Insurance Business Act, 1972 were amended
to remove the exclusive privilege of nationalized insurance companies to transact life

and general insurance business and allow for entry of private sector players in the insurance
sector. The Act also provided for the setting up of a statutory regulatory authority to regulate, promote
and insure orderly growth of insurance industry.
1. The IRDA has been established on 19th April, 2000. The authority has made regulations
in all major areas of operation in insurance industry.
2. The Insurance Act, 1938 allows for only Indian insurance companies registered under
the Companies Act, 1956 to transact insurance business in India after registration with the IRDA.
3. It is expected that the entry of co-operative insurance sector would increase the
insurance coverage especially in the rural areas.
Insurance Bill 2002 inter-alia contains provisions relating to payment of commission and fee for
insurance intermediaries allowing flexibility qualification for corporate agent. Flexibility mode of
payment of premium through credit card, smart card or internet etc. IRDA opened the market in
August 2000 with the invitation for application for registration. Foreign companies were allowed
ownership upto 26%.
Even prior to the IRDA Act a number of multinational companies had begun exploring the
possibility of setting up operation in India in anticipation of the deregulation of the industry. Certain
Indian companies were also keen to enter the insurance market and themselves seeking international
partners the authority has been empowered under section 26 of the IRDA Act to make regulation in
consultation with the insurance advisory committee, consequently following important regulation
related to life insurance come into force for the proper implementation of the IRDA Act, 1999.
Different regulation from IRDA Act:
a) IRDA (Registration of Insurance Company’s Regulation,2000).

b) IRDA (Insurance, Advertisement and Disclosure Regulation, 2000).

c) IRDA (Licensing of Insurance Agent Regulation 2000).

22
 d) IRDA (Obligation of Insurers of Rural-Social Sector Regulation, 2000).
e) IRDA (Life Insurance and Reinsurance Regulation Act, 2000).

Composition of Authority

The Authority shall consist of the following members namely:

a. A Chairperson;

b. Not more than five whole-time members;

c. Not more than four part-time members.

To be appointed by the Central Government from amongst persons of ability, integrity and
standing who have knowledge or experience in life insurance, general insurance, actuarial science,
finance, economic, law, accountancy, administration or any discipline which would, in the opinion
of the Central Government, be useful to the Authority.

Provided that the Central Government shall, while appointing the chairperson and the whole-time
members, ensure that at least the person is having knowledge or experience in life insurance, general
insurance or actuarial respectively.
Main Provisions of IRDA Act

Preamble of IRDA Act, 1999 read. “An Act 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 and incidental there to”. Sections 14 of
IRDA Act, lays the duties, powers and function of the authority. The power and functions of the
authority shall include the following.

a. Issue to the applicant a certificate of registration, to review, modify, withdraw,

suspend or cancel such registration.

b. To protect the interest of policyholders in all matters concerning nomination of

policy, surrender value of policy, insurable interest, and settlement of insurance claims, other term
and conditions of contract of insurance.

c. Specifying requisite qualification and practical training for

insurance intermediary and agents.

23
 d. Specifying code of conduct for surveyor and loss assessors.

e. Promoting deficiency in the conduct of insurance business.

f. Promoting efficiency in the conduct of insurance business.

g. Promoting and regulating professional regulation connected with the insurance and
reinsurance business.

h. Specifying the form and manner in which books of accounts will be maintained and
statement of accounts rendered by insurer and insurance intermediaries.

i. Adjudication of disputes between insurers and intermediaries. Specifying the

percentage of life insurance and general business to be undertaken by the insurers in rural or social
sectors, etc.

j. Section 25 provides that Insurance Advisory Committee will be constituted and

shall consist of not more than 25 members.

k. Section 26 provides that authority may in consultation with insurance advisory

committee make regulation consistent with this Act and the rules made there under to carry out the
purpose of this Act.

l. Section 29 seeks amendment in certain provisions of Insurance Act, 1938 in the

manner as set out in first schedule. The amendment to the insurance Act is consequential in order to
empower IRDA to effectively regulate, promote, and insure orderly growth of the insurance industry.

m. Section 30 and 31 seeks to amend LIC Act, 1956 and GIC Act 1972.

The role of IRDA in the present liberalized market is such that it has to regulate the business of
the insurance companies to ensure accelerated and balanced development of insurance market.
While protecting the right of the policy holders and by providing equal opportunities to the
insurers, agents, brokers and other intermediaries. The IRDA must formulate the accounting
principles to be adopted by the private sectors. The IRDA also hopes to promote its product on
the internet without having to be supplemented with the paper work. This could only be possible
with the major amendments in the insurance Act of 1938. This Act lays down certain operating
guidelines which makes its compulsory for the insurance company to follow there guidelines in
order to make

24
 The contract legally valid. Section 64 V.B. which states that the premium must be received in
advance, needs some amendments to make way for payment through credit cards. Another provision
relates to the affixing of stamps on the policy in order to make the contract valid in the court of law
the stamps should be affix on it as per the present regulation. This regulation also needs relaxation if
the transactions are to be carried out on the net.

How the insurance companies are equipping themselves to cope up with these developments is
yet to be seen and there worth will be soon put to test. It is high time that these companies review
their marketing strategies, budget allocation, sales target, staff training adopting sophisticated
technology, office automation in order to compete with their counter parts emerging in the scenario.
It is very important to set goals for the new millennium in such a fashion that it does not allow the
new entrants to lure the old customers with their baits.

It is possible for India to push its share in the world insurance market which has stagnated around
0.21 percent for many years, as against 4.5 percent total share of the developing third worlds.
According to the IRDA, in the year 2000, the share of India in the world market, both for life and
non-life insurance was a mere 0.34 percent as against China’s share of 0.67 percent. The vast
potential is waiting to be tapped. How for the Indian players will take advantage of the same is to be
seen. Given the political will, and some effort, it should not be too difficult to derive the full benefits
of the emerging situation.

25
 Privatizing Insurance Sector

Recently, the government of India permitted private companies of foreign countries with Indian
partner for doing life insurance business under the rules and regulations of insurance Regulatory and
Development Authority (IRDA). One of the reasons and why insurance sector is opened for the
private players is that in order to cover this huge distance India needs many more players. That is the
justification for opening up insurance to the private sector. Despite so many life and non-life
insurance companies functioning in India, it still has a long way to go.
Major Private life insurance companies, which entered the Indian market, are given in table.

Table

Pvt. Life Insurance Companies with Foreign Partners

S. Name Name of Name of Foreign Country

No. Indian Partner Insurance Co.
1. ICICI Prudential I.C.I.C.I Prudential U.K.
Life
Insurance Co. td.
2. H.D.F.C Standard H.D.F.C Standard Life U.K.
Life Insurance Co. Ltd.
3. Birla Sun Life Aditya Birla Sunlife Canada
Insurance Group
Co. Ltd.
4. Om Kotak Mahindra Kotak Old mutual South
Life Insurance Co. Ltd. Mahindra Africa
5. Max- AIG Life Max India Old New York U.S.A.
Insurance Life
Co. Ltd.
6. Tata AIG Life Tata Group A.I.G U.S.A.
Insurance
Co. Ltd.
7. S.B.I Life Insurance State Bank of Cardiff France
Co. Ltd. India

26
8. ALIANZ Bajaj Life Bajaj Auto Allianz German
Insurance Co. Ltd.
9. ING- VYSYA Life Vysya Bank ING Group GMR Netherlan
Insurance Co. Ltd. Group ds
10. AVIVA a Life Daubour C.G No. O U.K.
Insurance India
Co. Ltd.
11. AMP Sanmar Sanmar Amp Australia
Assurance Group
Co. Ltd.
12. Met Life Insurance M.Palljonji Pvt. Matro U.S.A.
Co. Ltd. Co. Policita
life ltd. J. and Bank Ltd.

27
 CHAPTER IV

4.1 Data Collection, Result and Interpretation

During the Financial Year 2017-18, the Banc assurance and Alternate Channel
(B&AC) completed 2,10,834 policies and garnered `1,420.50 crore of First Year Premium
Income (FYPI). The Percentage share of B&AC First Premium Income to Total First Premium
Income (Individual Assurance) was 3.27% during the year.

Banc assurance & Alternate Channel was started in the year 2001 after Reserve Bank
of India allowed banks to sell other financial products like Insurance and Mutual Funds.
Starting from 1,455 policies and ` 2.21 crore premium in the First Year, the channel has
multiplied manifold within a period of 17 years.

Currently, the channel has tie-ups with 12 Public Sector Banks, 5 Private Banks, 17
Regional Rural Banks, 36 Co-operative Banks and 1 Foreign Bank. We also have 52 Corporate
Agents & 63 Insurance Marketing Firms (IMFs) on roll. During the year, 5 new Banks, 13
Other Corporate Agents & 32 Insurance Marketing Firms (IMFs) were appointed.

Bank partners contributed 85.67% of Policies and 95.07% of FYPI of the total Banc
assurance and Alternate Channel business by completing 1,80,614 policies and `1,350.43crore
of FYPI. Other Corporate Agents completed 28,266 policies with ` 36.65 crore of FYPI.
Brokers completed 1,476 policies with ` 25.71 crore FYPI. New entity IMFs completed 478
policies with ` 7.70 crore of FYPI.

94 Bank Branches procured ` 1 crore and above TFPI, while 271 Bank Branches
procured TFPI between ` 50 lacs to` 99 lakh during the year.

DIRECT MARKETING:

Direct Marketing Channel, established in August, 2009 with 6 Units has 123 Units
spread across the country today.

The initiative was aimed at creating new systems for business generation, sales
process monitoring and business process with a view to reaching out to untapped markets and
providing a new and improved buying experience to the customers, especially to today’s
young, Tech Savvy Executives and High Net worth Individuals.

28
 In the Financial Year 2017-18, the Channel procured a First Premium Income of `
824.72 Cr on 71,011 Policies. The Distance Marketing centre of the Channel at Vile Parle
processes Online Products and has procured a First Premium of ` 185.44 Crs. on 16,795 policies.

The Chief Organiser (LIC DIRECT) Scheme, 2015, which was launched wef:
01.04.2015 to take forward the objectives of the Channel grew stronger in 2017-18 with 771
Chief Organisers contributing ` 175.32 Crs. First Premium Income.

4 products viz., LIC’s e-Term, Jeevan Akshay-VI, the Pradhan Mantri Vaya Vandana
Yojana (PMVVY) and LIC’s Cancer Cover Online Plan (launched on 14/11/2017) are available
for purchase online.

HEALTH INSURANCE:

During the year 2017-18, Health Insurance Division garnered a First Premium Income
of ` 83.99 Crores procuring 2,10,022 Policies.

Health Insurance Division started its operations at Hyderabad in February 2008 with
an objective of tapping the vast Health Insurance market through suitable Health Insurance
products and services. We have covered 27,49,469 lives under Health Insurance Policies up to
31.03.2018.

Currently, we are marketing two Health products viz., ‘Jeevan Arogya’, and Cancer
Cover Plan both non-linked Fixed Benefit Health Insurance Plans for Individuals which were
launched on 16/11/2013 and 14/11/2017 respectively.

During the year 2017-18, 22,843 Claims were adjudicated and the outstanding claims
were ‘NIL’ as at 31/03/2018. An amount of `32.31 crores was paid towards settlement of
Health Insurance claims during the year.For the firsttime, 390 Maturity Claim payments were
made under plan 901and an amount of `3.34Crores was paid towards the same.

MICRO INSURANCE:

Micro Insurance Business vertical completed 5,64,541 policies with ` 9.93 crores First
Premium Income in F.Y. 2017-18. Total number of policies covered by the vertical since
inception is 1.96 crores and it has thus provided valuable insurance cover to the

29
underprivileged and low income segments of the society. The contribution of this vertical to
LIC’s New Business in terms of number of policies for F.Y.2017-18 was 2.65%.

Micro Insurance policies are sold through a specialized distribution channel

comprising of Non-Government Organizations (NGO), Self Help Groups (SHG), Micro
Finance Institutions (MFI), Corporate Agents, Select Conventional Agents, District
Cooperative Banks (DCB), Regional Rural Banks (RRB), Urban Cooperative Banks (UCB),
Primary Agricultural Cooperative Societies (PACS), Other Cooperative Societies (CS) and
Banking Correspondents (BC). With effect from 26.04.2017, in addition to the existing
categories of MI agents, IRDAI has included FPCs (Farmer Producer Companies) in the list of
entities that can be appointed as MI agents. There are 19,183 MI agents on roll as on
31.03.2018.

In the F.Y. 2017-18, 215 villages were declared “Madhur Bima Gram” under
“Madhur Bima Gram/Community Scheme”. The Scheme envisages providing financial
incentive to a village for developmental activities on completion of a certain minimum number
of new policies from that area.

Collection of MI Renewal Premium through the outlets of CSC e-Governance Services

India Ltd has been started

w.e.f. 1st February, 2018.

MI policy holders can also directly pay premium at 4,470 designated Micro Insurance
Premium Points which cover all 2,048 Branch areas of the Corporation. 41.86% of Total
Renewal Premium transactions are through Premium Points. Renewal Premium Collection at
Premium Points in the F.Y. registered a growth of 26.65 % over previous year.

Total Renewal Premium collected by the channel in the year 2017-18 was ` 159.54
crores.

PRODUCT DEVELOPMENT

LIC offers a wide variety of products, which fulfill the needs of different customer
segments of the society.

During the year, the Corporation introduced/modified 12 Products. These include 8

new Individual products viz. LIC’s Aadhaar Stambh, LIC’s Aadhaar Shila, LIC’s Jeevan

30
Umang, LIC’s Jeevan Utkarsh, LIC’s Cancer Cover, LIC’s Jeevan Shiromani, LIC’s Bima
Shree and Pradhan Mantri Vaya Vandana Yojana, modification of anannuity product LIC’s
Jeevan Akshay –VI and modification of 3 Group products viz. LIC’s New Group
Superannuation Cash Accumulation Plan, LIC’s New Group Gratuity Cash Accumulation Plan,
LIC’s New Group Leave Encashment Plan.

In addition, the Corporation also introduced modified version of 3 riders viz. LIC’s
Accidental Death and Disability Benefit Rider, LIC’s Accident Benefit Rider and LIC’s Linked
Accidental Death Benefit Rider.

At the end of the financial year 2017-18, the Corporation had 30 Individual Products,
12 Group Products and 7 Riders, available for sale.

SENIOR BUSINESS ASSOCIATES(SBA):

The SBA Scheme was introduced in the year 2009 to recognize the high performance
of Senior Development Officers and to empower them for some financial & non-financial
functions.

The existing SBA Scheme has been modified w.e.f 18.12.2017 for entry &
continuation.

As per the modified Scheme, all Development Officers working with Cost Ratio up to
8% with a service of 3 years or more and who had done ` 2.00 Cr TFPI OR 1,500 Policies OR
having 50 or more agents in their organization in the last settled appraisal year are eligible for
enrolment. They shall continue as SBAs till they earn Incentive Bonus. They are empowered to
collect Renewal Premium and Proposal Deposit, do end to end solution and I-proposals &
some other non-cash transactions through SBA portal.

The number of SBAs as on 31st March, 2018 is 2,930.

The Total New Business brought in by SBAs in F.Y. 2017-18 is 49,33,299

Policies with ` 9,796.16 Cr FPI. Average FPI per SBA comes to ` 3.34 Cr.

Average number of Policies completed per SBA is 1,684.

For FY 2017-18, the Percentage Contribution of the SBA Channel to the total business
of the Corporation is 23.15 % in NOPs and 22.81% in FPI.

31
 LIC ASSOCIATES SCHEME (LICA)

The LICA Scheme was introduced from 01.04.2016, with an aim to introduce an
innovative distribution Channel and strengthen the distribution system by gainfully redeploying
the valuable marketing talent of Senior Business Associates at the time of their retirement. The
appointment of retired SBAs as LICA is for 3 years initially and can be extended by two years.
The LICAs are empowered to appoint new agents and mentor the existing agents & procure
New Business from these agents besides collection of renewal premium and proposal deposit
through their agents. As at 31.03.2018, the total number of LICAs are 53 and their Agency
Organization is 4,438 and they have procured total 75,986 Policies with 183.01 Cr. TFPI.

4.2Findings and Suggestions

Government’s Reluctance

The major beneficiary in the mandated regime was the government, which had an assured access
to low-cost funds for its use. Through the insurers, the government was able to garner and deploy
substantial amounts of funds for infrastructure development. Obviously it is most reluctant to give up
its control on this dependable source. The demand for funds for this purpose is ever increasing and in
the present financial problems faced by most developing countries, its importance in the financial
services sector cannot be overstated. In fact, it is not just in the developing world, but even in
advanced nations that a large proportion of funds for infrastructure development are drawn from the
insurance sector. Therefore, mobilization and proper utilization of such resources have to be
encouraged and yet strictly monitored by the government.

Another important consideration is that the life and non-life insurance companies have been
paying large amounts to the government by way of a portion of actuarial surplus in the case of the
LIC and dividends by the non-life companies. However, since the government increasingly needs
more money for the various development programmes, it naturally was not in a hurry to give up its
hold over such large funds.

However, the government, which expected the other sectors of the economy to adjust to the
changed circumstances, in turn, had also to accept the consequences thereof on its own finances. As a
result, recently the element of discretion with the insurers has been enlarged to the extent possible. It
is hoped that in times to come, there could be further relaxations.

32
 While there is no doubt that these funds did contribute substantially to national development, a
better method would have been to allow the public sector companies to charge market rates for these
investments, which would have improved their bottom line. The subsidy element in respect of
socially oriented schemes which were undertaken at the behest of the government should have been
passed on to the intended beneficiaries directly from the government budget. This would, on the one
hand, make the companies more accountable for their performance and on the other, introduce a
much needed transparency in all such transactions. This would have also meant greater
accountability in respect of individual schemes.

LALGI and IRDP beneficiaries’ schemes, in the case of the LIC, and PASS and HUT in the case
of the general insurance companies, are purely welfare schemes meant to provide relief to the
affected persons and do not involve any element of insurance. They should, therefore, as suggested
by the Malhotra Committee, be handled by the concerned government department. Somehow, that
recommendation has not been acted upon.

Regulation of Investment Inevitable

Every government finds it difficult to leave the investment decisions purely to market forces
or to the sole discretion of a few individuals and likes some control over the same. Since the
monies are collected on a long-term contractual basis with a trust that they will be secure with the
insurers, governments consider it necessary to regulate investment activity and accordingly, it is
regulated in most countries. The insurance industry in India too has been subjected to several
restrictions and specific or broad guidelines for a long time. After the setting up of the IRDA, more
detailed guidelines have been issued and are being reviewed and revised from time to time.

The regulations fall in three broad classes: those laid down by the law, those by the
government, and those laid down by the individual Boards of Directors.

Primarily, the regulation of investment needs to focus on the following aspects: solvency
requirements; asset valuation regulation; minimum percentage of the fund to be invested in certain
asset categories; restriction on the maximum amount of investment in certain classes of assets;
limits on sale and purchase of scrips; restriction on the percentage of funds that can be invested in
any one company/industry; and treating some assets as inadmissible for valuation purposes. In
particular, the insurers have to protect the policyholders’ interests, and hence have to maintain a
minimum prescribed level of solvency. The solvency margin means the excess of ‘assets’ over

33
‘liabilities’. In India, the degree of solvency is prescribed by the Insurance Act, 1938.

The extent to which these regulations seek to control the assets of the insurance companies
differs from country to country. According to Vaidyanathan (2001), broadly, there are two
regulatory models governing investment policies of insurance companies and pension funds- the
Prescriptive Model and the Prudent Man Model. The Prescriptive Model is one where the asset
allocation decisions of these institutional investors are dictated by a mandated investment pattern.
This is followed in countries like India, Canada, Italy, Japan and South Korea. On the other hand,
Prudent-Man Model is one where there is no mandated investment pattern, but ‘eligible assets’ and
‘admissibility limits’ must back the prescribed minimum solvency related to eligible assets. This
model indirectly influences the asset allocation decisions of the companies. This model is adopted
in countries such as the USA, UK, France and Spain.

Investment Decisions Mandated by the Government

Insurers are required to fulfill certain social commitments as well. As many of the social
welfare measures are funded by the state in almost every country, insurance companies are not just
regulated, but have been mandated to hand over a portion of their funds to the state for investment
in infrastructure and for social development through government bonds and securities. The state
itself specifically suggests areas of social infrastructure that enhance the quality of life, providing
essential social services, in which they are obliged to invest a given percentage of investible funds.
This is a feature in developing as well as developed and most unregulated economies. It is believed
that this ensures reasonable safety of the insurers’ money.

In India, the pattern of investment was, accordingly, prescribed in great detail by the
government. This was not in the form of guidelines, but as legal obligation under the Insurance
Act, 1938 it was stipulated that the LIC should invest its funds in the following manner:

Type of investments Percentage of controlled

funds
(i) Government Securities 25%
(ii) Government and other- approved Not Less than 30%

securities including (i) above

34
 (iii) Approved investments-

(a) Infrastructure and Social Not less than 15%

sector
(b) Others governed by

exposure/prudential norms Not exceeding 20%

(iv) Other than approved- investments Not exceeding 15%

governed by exposure norms

Source: Palande, P.S., Shah, R.S. and Lunawat, M.L., Insurance in India, 2003 Response
Books, New Delhi

After April 1, 1995, the pattern was slightly changed as given below.
Type of investments Percentage of
controlled funds
(i) Central Government Securities Not less than 20%

(ii) State Government Securities, and other Not Less than 30%
guaranteed securities

(iii) Housing and loans to Stategovernments Not less than 5%

for housing and fire fightingequipments

(iv) Approved investments

(a) Infrastructure and social sector Not less than 10%

(b)Others governed by Not exceeding 30%

exposure/prudential norms
(c) Other than approved investments Not exceeding 25%
governed by exposure norms

4.3 Conclusion

The main regulations that regulate the life insurance business are the Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 and IRDA Act, 1999 and regulations made thereunder. The
Indian Contract Act, 1872, governs most of the aspects of the insurance contract. Additionally, the
Foreign Exchange Management Act, 2000, Income Tax Act, 1961, Indian Stamp Act and the

35
 Hindu and Indian Succession Act, 1956 govern some aspects involved in insurance. This chapter
deals with
(i) The complexity of insurance legislation,
(ii) The study of the Insurance Act, 1938, The Life Insurance Corporation Act, 1956, The IRDA
Act, 1999, Taxation of Insurance Companies, different intermediaries in the life insurance business,
Principles of Insurance Law, Role and responsibilities of insurance brokers under IRDA Act as also
the amendments to the Insurance Laws vide the Insurance Laws (Amendment) Bill, 2008.

4.4 Reference:

1. Palande, P.S. and R.S. Shah (2007), "Insurance in India," Changing Policies and
Emerging Opportunities. A division of Sage Publications India Pvt. Ltd, New Delhi, pp299-
300.
2. Intelligent Investor, Outlook Money,2001.

3. Meder, Robert C “Changes in the Global Insurance Market”, Insurance

Chronicle,Aug. 2001,p.26.
4. Mishra, M.N., "Insurance Principles and Practice." (2005)
S.Chand & Co. Ltd. New Delhi,pp.193-194
5. Intelligent Investor, Outlook Money,2001.

6. Malhotra, R.N. Committee on Reforms in the Insurance Sector, Report, Govt. of

India, Ministry of Finance, New Delhi, January 1994, pp. 1,26,98.
7. Desai, Morarji, Tryst with Trust: The LIC STORY, Statement in Parliament, LIC of
India, Mumbai, Aug 25, 1958,p.102.
8. Vaidyanathan, R. “Investing Insurance Funds,” The Chartered Accountant: January
2001, p. 29
9. LIC Annual Web Report 2017-2018.

JOURNALS AND PERIODICALS

a. The Insurance Times.

b. Banking Finance.

36
c. BusinessIndia.

d. Yogakshema.

e. Journal of Accounting andFinance.

f. The Chartered Accountant.

g. Vikalpa.

h. The Management Accountant.

i. BusinessToday.

j. Arthvigyan.

k. Yojana.

l. The Economic Times.

m. The FinancialExpress.

n. BusinessStandard.

o. Times of India.

p. Businessworld.

WEBSITES

q. www.insuranceinstituteofindia.com

r. www.insure.com

s. www.insweb.com

t. www.irda.org

u. www.irdaindia.org

v. www.licindia.com

w. www.123bima.com

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x. www.bimaonline.com

y. www.bimaguru.com

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