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Recent
Trends in The Growth of LIC of India |
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| Paper Id :
19091 Submission Date :
2024-07-15 Acceptance Date :
2024-07-20 Publication Date :
2024-07-24
This is an open-access research paper/article distributed under the terms of the Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. DOI:10.5281/zenodo.12925341 For verification of this paper, please visit on
http://www.socialresearchfoundation.com/remarking.php#8
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| Abstract |
For several decades, Life Insurance Corporation of India has been a single most important insurance provider in India. It has played a crucial role in development of the insurance sector of India and is expected to do so in future. However, it has received stiff competition from the private sector of India who since the adoption of economic reforms in India has been competing with LIC in terms of market share and premium income. The present paper delineates on all the issues concerned with latest developments in LIC and the future trends which are expected to emerge due to changes in market dynamics of Insurance markets of India. |
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| Keywords | Life Insurance Corporation (LIC) of India, Private Players, IPO, etc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Introduction | Before the turn of the new millennium, the Life Insurance Corporation (LIC) and its emblematic acronym held immense significance for Indians, symbolizing financial security. Presently, the government-owned LIC continues to provide insurance coverage to a staggering 290 million Indians, equating to one in every five individuals. Remarkably, despite private insurers entering the market in 1999 and operating for over two decades, LIC retains an imposing 66 percent share of the country's life insurance market. LIC stands as an unparalleled financial giant within India, surpassing even the State Bank of India (SBI) in magnitude. Boasting an extensive network of 4,955 offices across the nation, many occupying prime real estate, it remains deeply embedded in the country's financial landscape. The corporation employs a substantial workforce of 108,000 individuals and collaborates with a staggering 1.3 million agents across the country. With assets under management amounting to Rs 36 lakh crore, LIC emerges as a megacorporation, dwarfing even Reliance Industries, India's largest private sector company, by threefold. Its enduring presence and influence illustrate the unwavering confidence and trust Indians place in this institution as a cornerstone of financial protection. For numerous years, successive Indian administrations have considered LIC (Life Insurance Corporation) as a precious asset, safeguarded like family silver, and refrained from parting with it. The corporation has played a significant role in supporting the government's financial stability by being the largest buyer and investor of government securities, amassing a substantial amount of Rs 17 lakh crores as of March 31, 2020, which surpasses even SBI's holdings of Rs 10.47 lakh crores. LIC's investments have also granted it seats on the boards of several private companies, allowing the government to exert indirect influence on these entities. |
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| Objective of study | There would be no exaggeration if we call LIC of India as an insurance giant, for the simple reason that for several decades, it has been the single company in insurance sector of India which has borne the burden of providing insurance cover to the people of India and has laid down the base for the vast insurance market and its network in India which not only has its presence in urban areas of India but is spread across the nuke and corner of Indian subcontinent. Lately, there have been several changes in the performance trends of LIC of India, partially pertaining to the heat of competition which this previous insurance monopolist has been facing and rest due to abrupt advent of COVID-19 which impacted both its payout amounts and premium amounts. At this juncture, it is imperative to take a stock of situation and explore the latest development along with future changes that are expected to surface in the wake of policy changes undertaken by the government of India. |
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| Review of Literature | There have been several studies pertaining to the trends in growth and performance of LIC. Gist of some of the most important studies is being given as under: In 2013, T. Hymavathi Kumari conducted an extensive examination of the insurance sector's response to the ongoing digital transformation. The paper delved into several key aspects, including the impact of the abundance of new information on information asymmetry and risk pooling. Additionally, it explored the implications of emerging technologies on loss frequency and severity, as well as the growing interdependencies of systems due to increased connectivity. The study offered valuable insights, benefiting both academics and practitioners by shedding light on the industry's evolving landscape and emphasizing the importance of embracing digital transformation to maintain competitiveness and sustainability in the dynamic market. In 2015, Parmasivam et al. carried out a comprehensive review, focusing on the influence of changes in norms and policy types issued by LIC in India. The study also involved a comparative analysis of private and public sector life insurance in India. Interestingly, the research revealed that LIC stands out as the most reliable and respected insurance entity in India, commanding the highest level of trust and reliability among customers purchasing life insurance policies. Separately, in 2019, Patel & Dwivedi emphasized the necessity for the Indian insurance distribution system to adapt and innovate in order to tap into the vast untapped markets in rural and urban areas. The study highlighted the importance of insurers adopting multi-channel strategies and developing more effective distribution channels to capitalize on opportunities and offer appropriate products. As per the study of Mushunje (2019), the insurance sector has witnessed notable improvements in dealing with increased workloads and combating fraud, thanks to advancements in technology, particularly the implementation of data mining techniques. The process of knowledge discovery through data mining has proven crucial, especially when addressing complex cases that require special attention. Fraudulent practices within the insurance industry pose serious challenges that demand unique approaches and expertise from authorities. Furthermore, the application of data mining through sequential pattern mining enables the prediction of potential fraudulent cases in the future. This proactive approach assists insurers in devising effective strategies and precautions to mitigate risks even before fraudulent incidents occur (Mushunje, 2019). As a result, insurers can better plan and respond to fraudulent activities, safeguarding their interests and protecting their clients' assets. Ratnakaram et al., (2021) provided that Insurance plays a crucial role in bolstering the economies of nations worldwide by safeguarding the future earnings of individuals and companies against uncertainties and risks, thus contributing to a nation's gross domestic product. Over the past decade, the insurance sector has experienced a revolutionary wave of technological advancements and innovative strategies that have transformed the marketing of insurance products globally. The paper further added that this herculean task in India has been handled aptly by LIC of India. |
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| Analysis |
Status of LIC in India LIC has been a
prominent provider of life insurance services in India. Despite the presence of
24 other life insurance companies in the country, LIC remains at the forefront
with the largest market share. In fiscal year 2021, the Indian life insurance
industry reached an impressive size of Rs 6.2 lakh crores in terms of total
premiums, witnessing growth from Rs 5.7 lakh crores in FY20. Notably, LIC's
share of the gross written premiums stands at an impressive 64.1 percent as of
FY2021. Journey Of LIC With
the liberalization of the life insurance sector in 2001, there has been an
astounding growth in premium figures. Starting from a modest Rs 36,071 crores
in the financial year 2000-01, the industry has witnessed a staggering 16-fold
increase, reaching an impressive Rs 5,72,910 crores in 2019-20, boasting a
Compound Annual Growth Rate (CAGR) of 15.6 per cent per annum. Notably, the LIC
has adeptly capitalized on this liberalization, experiencing substantial growth
at a CAGR of 13.2 per cent annually. However,
this growth story also brings forth a new set of challenges that the LIC and
the entire life insurance industry must confront as they forge ahead in the
dynamic landscape of the financial sector As
of the most recent data provided by IRDAI (Insurance Regulatory and Development
Authority of India), the Indian insurance sector is valued at Rs 7.63 lakh
crores. This sector comprises a total of 67 companies, including 24 life
insurance companies and 10 global reinsurance companies. Among them, LIC (Life
Insurance Corporation of India) stands as the sole public sector company
exclusively dealing with life insurance. In the fiscal year 2019-20, LIC reported
a total income of Rs 6,15,883 crores with a net profit of Rs 2,713 crores. While the private life insurance companies collectively hold a significant share in the market, LIC still dominates with a commanding 66 per cent market share. Among the top five private life insurers, ranked by new business premiums, SBI Life (a subsidiary of SBI) holds the largest market share at 7.68 per cent, followed closely by HDFC Life (an arm of HDFC) with 7.23 per cent. Max Life, in which Axis Bank holds a 12 per cent stake, captures 2.3 per cent of the market, while Bajaj Allianz Life Insurance (a joint venture between Bajaj Finserv and German major Allianz) and Aditya Birla Sun Life Insurance (a joint venture between the Aditya Birla Group and Canadian major Sun Life Financial) have market shares of 2.04 per cent and 1.64 per cent, respectively. In 2019, the global share of life insurance business in total premiums was 46.34 percent. Surprisingly, India stood out with an exceptionally high share of 74.94 percent of life insurance business in total premiums. Data from Swiss Re, the Zurich-based reinsurer, revealed that India ranked 10th among 88 countries in terms of premium income from life insurance. Despite its significant share, India's contribution to the global life insurance market was 2.73 percent in 2019. Notably, India experienced a substantial 9.63 percent increase in life insurance premiums that year, while the global life insurance premium rose modestly by only 1.18 percent. LIC
(Life Insurance Corporation of India) maintains its dominant position in the
insurance market due to several inherent advantages. Unlike private insurance
companies, LIC policies carry a sovereign guarantee, providing them with a
higher level of trust. This guarantee is derived from Section 37 of the LIC
Act, 1956. Additionally, the Income Tax Act, 1961, offers a deduction of up to
Rs 1,50,000 for individuals investing in life insurance policies under Section
80C. As a result, many savings in India are directed towards life insurance. What sets LIC apart from newer players is that a significant majority of the policies they sell combine savings and life cover. These products are of the 'participating' nature, which means policyholders can share in the insurance company's profits through bonuses or dividends. With this unique proposition, LIC focuses on catering to the masses, emphasizing high-volume sales. Bussiness Performance of LIC from 2000-2001 to 2021-22 Table 1 given below provides for business performance of LIC in India from the financial year 2000-2001 to 2021-22. It can be witnessed from the table that there has been consistent increase in the amount of total premium collection in Rs. crores. However, its share in insurance market of India has been declining. This has been due to increase in number of total number of players in the insurance market of India and stiff competition from them. For the performance of LIC from 2000-2001 to 2021-22 the mean of total premium collection in Rs. crores stood at Rs. 214995.7 crores. The mean for new business premium stood at Rs. 60362.02 crores. The table further provides that the mean for market share in total premium stood at 81 percent and mean of market share in new business premium stood at Rs. 71.15 crores. Table 1 Business Performance of LIC From 2001-2021-22
Latest Developments in LIC vis a vis Other Insurance Companies of India During
the fiscal year 2022-23, the Life Insurance Corporation of India (LIC)
experienced a remarkable 16.67 percent increase in its total premium
collection, reaching Rs.2.32 trillion compared to Rs.1.99 trillion
previously. This substantial growth solidifies LIC's position as the unrivaled
insurance giant in terms of sheer volume. Holding a dominant market share of
62.58 percent as of March 2023, LIC maintains its leading position in premium
collections. Notably, private insurers also saw a surge in premium collection in March 2023, driven by last-minute customer rush to benefit from tax exemptions before their withdrawal for non-linked policies on April 1. LIC's premium growth for fiscal
2023 ranks second highest among its listed peers, with HDFC Life leading at
18.83 percent, followed by SBI Life at 16.22 percent, and ICICI Prudential Life
Insurance Company at 12.55 per cent. LIC's performance highlights its continued
significance in the insurance industry despite strong competition from private
players. In
FY23, the insurance giants experienced varying growth rates in their premium
segments. The individual single premium increased by 3.30 percent, while the
individual non-single premium surged by 10 per cent. However, the most
substantial growth was observed in the group single premium, which rose by an
impressive 21.76 percent, reaching Rs.1,67,235 crore from Rs.1,37,350.36 crore. By
March 2023, LIC dominated the market with its individual category premium
surpassing Rs.10,000 crore, the highest among all life insurance companies.
Following LIC, HDFC Life, SBI Life, and Tata AIA Life achieved premium figures
of Rs.2,989.17 crore, Rs.2,318.77 crore, and Rs.1,884.41 crore, respectively. In
the individual non-single premium segment, there was a notable growth of 10.49
per cent, climbing from Rs.5,501.12 crores in March 2022 to Rs.6,077.97 crore
in March 2023. A report by Kotak Institutional Equities, published in January, indicated that listed insurers are expected to deliver a remarkable 15-60 per cent growth in the value of new business for the fourth quarter (Q4 FY23). This growth is attributed to improvements in term business, non-par business, and enhanced operating leverage. Expected Future Trends of LIC In India Over the past two decades, both the government and LIC have resisted disinvestment pressures. However, faced with pressing challenges, including a growing fiscal deficit and an underperforming economy even before the pandemic, the BJP-led Shri Narendra Modi government announced in Budget 2020 its intention to divest a portion of its stake in LIC through an initial public offering (IPO) of approximately 5 to 10 per cent. Despite some opposition from certain sections of the Sangh Parivar and internal resistance within LIC, progress towards the IPO has been limited. With the pandemic severely impacting government revenue and leading to a record fiscal deficit of 9.5 per cent of the GDP in 2020-21 (representing the shortfall between the government's total revenue and total expenditure), the Modi Government is actively exploring various financial avenues to reduce the deficit to the targeted 6.8 per cent for the next financial year. The upcoming LIC IPO has gained crucial importance as it is seen as a potential solution to rescue the government from its current financial challenges and prevent the economy from spiraling out of control in case fiscal targets are not met The
finance ministry officials are hopeful that the target can be met by boosting
revenue from taxes, receiving dividends from public sector enterprises, and,
crucially, achieving the disinvestment target of Rs 1.75 lakh crores. However,
there are concerns as the government could only manage to secure Rs 32,000
crores out of the Rs 2.10 lakh crores disinvestment commitment it had made in
FY21. This raises doubts about the government ability to fulfill its divestment
ambitions. Despite
the uncertainty, the government reaffirms its commitment to launch the IPO for
LIC (Life Insurance Corporation of India) as mentioned in the budget document.
Although no formal market valuation has been conducted, it is believed that
LIC's IPO has the potential to raise Rs 1 lakh crore, a significant amount
compared to the Rs 15,200 crores raised through the IPO of state-owned giant
Coal India in 2010, which was the largest IPO in the country until then. The
government's mammoth fund-raising initiative is aimed at fulfilling a
significant portion of its disinvestment target and fiscal goals. This move has
the potential to revolutionize the sluggish and opaque public sector giant, LIC,
into a nimble and world-class insurance company known for its operational
transparency. The anticipated transformation could also result in a market
capitalization similar to esteemed firms like Reliance Industries, Tata
Consultancy Services, and HDFC Bank. Mr.Motilal
Oswal, CMD of Motilal Oswal Financial Services, believes that the disinvestment
in LIC will likely create one of India's most esteemed listed entities,
attracting substantial foreign capital investments. The expected IPO launch of
LIC in the upcoming financial year is projected to introduce approximately 10
million individual investors to the Indian stock markets, significantly
broadening its retail base. Inclusivity is also a key focus, as the government plans to reserve up to 10 percent of the IPO issue size specifically for LIC's policyholders, as stated by Mr. Anurag Thakur, the Minister of State for Finance, during his address to the Rajya Sabha in February. This gesture ensures that LIC's policyholders have an opportunity to participate and benefit from the company's growth. The government has made a significant announcement, stating its decision to increase the FDI (foreign direct investment) limit in private insurance companies from 49 per cent to 74 per cent. This move is being regarded as a crucial economic reform that has the potential to introduce essential private competition for government-owned insurance companies, notably LIC. Moreover, it aims to tap into the vast opportunities offered by the Indian insurance sector, leading to potential job growth. Nevertheless, implementing this decision may not be without its challenges. |
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| Conclusion |
In summary, LIC's continued dominance in the market can be attributed to its sovereign guarantee, tax benefits, and a strong emphasis on offering participating policies that combine savings and life coverage. These factors have contributed to building a higher level of trust among customers and drawing considerable investments into life insurance from the Indian population. |
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