CHAPTER – 1

INTRODUCTION

1.1 HISTORICAL BACKGROUND OF LIC

Origin of insurance is still a mystery. No hard facts are available

about the time and place of its origin. It is argued that philosophy of
insurance originated with the evolution of man. Human beings are
accustomed to take risks in their daily life and they always have an
intention to be protected or get insured against these risks. The insurance
system is believed to have existed during the ancient India with the
indication that Rigveda, Hummurabi and Manusmurity included the word
‘Yogasham’ which means Insurance. As such insurance is believed to have
originated as early as between 1000 BC to 2000 BC in India. There are
some people who believe that it existed in 4500 BC in the ancient
civilization of Babylonia and Assyria, Greek and Rome. But single opinion
about its evolution is yet to be reached at.

Fifty year ago, if any person (educated Urbanite) were asked to

express his opinion about Life Insurance, he would have unhesitatingly
said, “Money paid when you die”. Some would also have added “Widow’s
money”. The situation has since changed. The efforts of Life Insurance
Corporation of India, a nationalized institution since 1956, did not go
waste. These efforts brought a perceptible change in the common man’s
attitude towards life insurance even in rural areas of the country. The
vision of Dr. CD Deshmukh, the then Finance minister of the country, who
piloted the nationalization of Life Insurance business in India, was

1
indicative of his foresight. He said in his address to the Parliament “Into
the lives of millions in the rural areas, it will introduce a new sense of
awareness of building for the future in the spirit of calm confidence which
insurance alone can give. It is a measure conceived in a genuine spirit of
service to the people.”

Life insurance is a contract for payment of a sum of money to the

person assured (or failing him/her, to the person entitled to receive the
same) on the happening of the event insured against. Usually the contract
provides for the payment of an amount on the date of maturity or at
specified dates at periodic intervals or on unfortunate death, if it occurs
earlier. Among other things, the contract also provides for the payment of
premium periodically to the corporation by the assured. Life insurance is
universally acknowledged to be an institution, which eliminates ‘risks’,
substituting certainty for uncertainty and comes to the timely aid of the
family in the unfortunate event of the death or of total permanent disability
of the breadwinner. By and large, life insurance is civilization’s partial
solution to financial uncertainties caused by untimely death.

The main risks that are faced by an individual are premature death,
disability, and excessive longevity. These risks may ruin an individual as
well as his/her dependents economically by causing the stoppage of regular
income. Such a state is referred to as “Economic Death” of an individual.
Protection through insurance may save an individual and his family from
such an economic death. The concept of insurance is based on three
principles; economic, legal and actuarial / mathematical. According to the
economic principle, a larger group who are facing the similar type of risk
shares the loss suffered by an individual. The legal principle restricts the
members of the risk pool to enjoy the benefit of having insurance converge

2
without violating the laws of the land. The actuarial / mathematical
principle enables a life insurer to estimate the premium to be paid by each
member in order to get the required level of protection on the basis of the
risk class to which an individual belongs.

1.2 OBJECTIVES OF LIC

The Life Insurance Corporation of India has the following objectives:

i. Spread Life Insurance much more widely and in particular to

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.

ii. Maximize mobilization of people’s savings by making insurance-

linked savings adequately attractive.

iii. Bear in mind, in the investment of funds, the primary obligation

to its policyholders, whose money it holds in trust, without 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 of national priorities and
obligations of attractive return.

iv. Conduct business with utmost economy and with the full
realization that the moneys belong to the policyholders.

3
 v. Act as trustees of the insured public in their individual and
collective capacities.

vi. Meet the various life insurance needs of the community that
would arise in the changing social and economic environment.

1.3 ESTABLISHMENT & DEVELOPMENT OF LIC IN

M.P. & CHHATTISGARH

The Life Insurance Corporation Act 1956 provided for the

nationalization of life insurance business in India by transferring all such
businesses to a corporation established for the purpose and to provide for
the regulation and control of the business of the corporation and for
matters connected therewith or incidental thereto. The demand for
nationalization of Life Insurance Industry was repeatedly made in the past
but gathered momentum in 1944, when a bill to amend insurance Act 1938
was introduced in the assembly. The Subject again gathered prominence in
early fifties in the Nehru-Morayan correspondence in 1953. The President
of India issued the Life Insurance (Emergency Provisions) Ordinance on
January 19, 1956, which was the first step towards nationalization of life
insurance business. The life insurance business was thus passed from
private hands to Government’s hands. The Life Insurance Corporation of
India formed on 1st September 1956 with the merger of 245 private
insurance companies (both Indian and foreign). One of the major
objectives of nationalization was spreading the message of insurance as
wider as possible, so as to reach out beyond the advanced areas of the
country. At present, the Life Insurance Corporation of India has the
monopoly over the life insurance business of India. The Life Insurance

4
Corporation Act, 1956 defined the organizational structure of the
Corporation.

On 1’st September 1956 Life Insurance Corporation of India came

into being with the merger of 245 foreign and Indian insurance companies.
During the year 1956 the administrative setup of L.I.C. was –

Central Office - 1
Zonal Offices - 5
Divisional Offices - 33
Branch Offices - 292

Currently the Corporation has 7 Zonal Offices, 100 Divisional Offices and
2048 Branch offices spread across the country.

In the year 1956 there were only two divisional offices - Jabalpur
and Indore and 27 branch offices in Madhya Pradesh. Administrative
control of Madhya Pradesh and Uttar Pradesh were with the Kanpur Zonal
Office at U.P. Uttar Pradesh was the biggest state of the country with
regards to population and Madhya Pradesh was the biggest state of the
country with regards to area. In such a situation it was felt necessary that
one administrative office for two such bigger states were insufficient, as
spreading the message of social security schemes to the remotest areas of
Madhya Pradesh was not possible. Since the Zonal Office of Central Zone
was in U.P. at Kanpur, it was quite natural that larger emphasis and
importance would be given to that state and Madhya Pradesh was left
aloof. Hence a decision was taken for opening up of a separate Zonal
Office for Madhya Pradesh with Zonal Head Quarter at Bhopal with the

5
name of Central Zone and renaming the previous Central Zone (H.Q. –
Kanpur) as Northern Central Zone.

On 2’nd September 1992 Zonal Office at Bhopal came into being

with 5 Divisional Offices and 121 Branch Offices. Under the provisions of
State Reorganisation Act 1956 the state of Madhya Pradesh was formed on
1’st November 1956 within an area of 4,43,446 Sq. K.Ms. and was the
largest state of the country before the creation of Chhattisgarh.

Chhattisgarh, the 26th State of Indian Union, came into existence on

November 1,2000. The Madhya Pradesh Reorganisation Bill, 2000
provided for the creation of Chhattisgarh. The State comprises the sixteen
districts of Madhya Pradesh. These are: Bastar, Bilaspur, Dantewada,
Dhamtari, Durg, Janjgir-Champa, Jashpur, Kanker, kawardha, Korba,
Koriya, Mahasa-mund, Rajgarh, Raipur, Rajnandgaon, and Sarguja. Bastar
is the Chhattisgarh’s biggest district and its cultural showpiece on account
of its rich cultural heritage.

Chhattisgarh is rich in mineral resource such as bauxite, corundum,

dolomite, diamond, limestone, iron ore, tin ore, alexandrite, china clay,
quartz, silica, fire clay, fluorite and coal. The State boasts of a treasure
trove in the form of Deebhog diamond mine, which alone is capable of
generating revenue of Rs. 2000 crore annually.

Nearly 44 per cent (59,285 sq. km.) of its area is under forest cover.
Tendu leaves, Chironji, Harar, Baheda, Mahua flower, and Sal seed are
some of the important forest products.

6
Area : 1,35,133 sq km

Capital : Raipur

Languages : Hindi, Mokini

Districts : 16

Assembly Seats : 90

Population : 2,07,95,956
(2001 Census)

Density : 154 persons per sq. km.

Literacy : 65.18 %

Chhattisgarh comes under the Central Zone of LIC of India. There

are seven Divisional Offices of LIC in Chhattisgarh. They are situated in
Bhopal, Indore, Jabalpur, Raipur, Gwalior, Satna and Shahdol. There are
27 branches and 1 satellite branch for LIC in Chhattisgarh.

Table 1.1
CITY BRANCHES OF LIC IN CHHATTISGARH

Branch Code number Address

BO-1, Raipur 382 14, Civil Lines, Raipur
BO-2, Raipur 298 Investment Building, Divisional
Office Premises, Raipur

BO-3, Raipur 38 M Khamtarai, Raipur

CAB – Raipur 390 Jeevan Prakash Jeevan Bima Marg,
Pandari, Raipur
Source : LIC’s Divisional Office, Raipur (C.G.)

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 Table 1.2
MOFUSSIL BRANCHES OF LIC IN CHHATTISGARH
Branch Code number Address

BO- Bhatapara 38 G Gandhi Mandir Ward, Bhatapara

BO-1, Bhilai 381 Civic Centre, Bhilai
BO-2, Bhilai 38 E G.E. Road, Powerhouse, Bhilai
CAB – Bhilai 38 K Akash Ganga Complex, Supela Bhilai
BO-1, Bilaspur 384 Jeevan Jyothi, Near arora Dharam, Kanta
Bilaspur
BO-2, Bilaspur 38 H Surya Bhawan, Gandhi Putla Chowk
Juna, Bilaspur
CAB- Bilaspur 3065 Kamla Complex, Nehru Chowk, Bilaspur
BO- Dalli Rajhara 38 F Behind BSP Hospital, Dalli Rajhara
BO- Dantewada 38 C Near Bus Stand, Dantewada, Bastar
BO- Dhamtari 379 Opposit New Bus Stand, Dhamtari
BO- Durg 383 Jeevan Jyoti, Padmanabhpur, Uttai Road,
Durg
BO- Jagdalpur 377 Dhamampur Road, Jagdalpur, Bastar
BO- Kanker 3036 Kanker, Bastar
BO – Korba 389 Kosabadi, Korba
BO – 2, Korba 38 J Commercial Complex, Transport nagar,
Korba
BO- Mahasamund 248 Jeevan Jyothi, Raipur Road,
Mahasamund
BO – Mungeli 38 D In front of Co-operative Society,
Danpara, Mungeli
BO – Naila 38 A Station Road, Naila
BO – Pathalgaon 3067 Raigarh Road, Pathalgaon
BO – Raigharh 384 Satigudi Chowk, First Flor, Raigharh
BO – Rajnandgaon 249 Saraswati Sadan, Near Subhash Gate,
Kamthi Road, Rajnandgaon
BO – Saraipali 38 L Saraipali
LIC – Housing Finance - Shyam Market, Pandari, Raipur
limited, Raipur

Source : LIC’s Divisional Office, Raipur (C.G.)

8
 Premium Income of LIC

Increase in premium income has been considerably high, as it has

increased in absolute as well as in relative term. The percentage increase
per annum has been rising year after year. The percentage change over
previous year was the highest 15.06 percent in 1976 and the lowest 7.90
percent in 1963.

9
 TABLE 1.3
PREMIUM INCOME OF LIC

Year Premium income Percentage increase

(Crores of Rs.) over previous year

1957 88.65 -
1960 97.55 12.68
1963 151.05 7.90
1970 260.41 10.92
1975 511.24 12.39
1976 588.25 15.06
1980 875.37 12.95
1981 964.88 10.22
1984 1355.10 11.86
1985 1559.33 15.07
1989 3432.72 28.48
1990 4489.39 30.78
1994 9735.32 21.88
1995 11527.80 18.41
1996 14181.77 23.02
1997 16351.39 15.30
1998 19252.07 18.55
1999 22805.80 18.46
2000 27461.71 20.42
2001 34207.78 24.56
2002 48963.60 43.14
Source : LIC’s Annual Reports and Accounts

10
 The premium income has increased from Rs.88.65 crores in 1957 to
Rs.875.37 crores in 1980 by abut 10 times and to Rs.1355.10 crores in
1984 by more than 15 times and again to Rs.1559.33 crores in 1985. It has
touched the highest level of Rs.4489.39 crores in 1990 and Rs.9735.32
crores in 1994, Rs.11527.80 crores in 1995 and Rs.34,207,78 crores in
2001 and Rs.48963.60 crores in 2002.

Performance of LIC in Chhattisgarh

Raipur division has won the chairman’s shield in respect of claims

performance for two consecutive years in 2001-2002 & 2002-2003.

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 Table 1.4
HIGHLIGHTS OF CLAIMS PERFORMANCE
(LIC OF INDIA DIVISIONAL OFFICE, RAIPUR (C.G.))

PARTICULARS 1999- 2000- 2001- 2002- 2003-

2000 2001 2002 2003 2004
MATURITY CLAIMS
(SB+MATURITY)
Number of claims 90245 102815 114900 124513 130782
(Total intimations)
Number of outstanding 1804 362 0 0 0
claims
Outstanding ratio 1.95 0.35 0 0 0
Speed ratio 88.94 95.94 94.00 97.08 98.40
Category C A A A A
Number of Branches with 2 14 26 26 26
zero O/S
DEATH CLAIMS
Numbers of claims 2949 3088 3229 3608 3880
(Total intimations)
Numbers of outstanding 673 116 13 0 0
claims
Outstanding ratio 20.98 3.08 0.39 0 0
Speed Ratio 90.39 93.78 95.03 98.52 99.21
Category D A A A A
Number of Branches with 0 3 18 26 26
Zero O/S
Source : Divisional Office, Raipur (C.G.)

Maturity claims in Raipur Division increased from 90,245 in 1999-

2000 to 130782 in 2003-2004. Number of outstanding claims decreased
from 1804 in 1999-2000 to zero in 2003-04. Speed Ratio is showing an
increasing trend, which is sign of good performance.

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 TABLE 1.5
SETTLEMENT OF CLAIMS ON OR BEFORE DUE DATE
(SPEED RATIO)
(LIC OF INDIA DIVISIONAL OFFICE, RAIPUR (C.G.))

Particulars Maturity S.B. Total

2003-2004 95.92 98.90 98.40
2002-2003 93.15 97.80 97.08
2001-2002 87.16 95.09 94.00
2000-2001 91.92 88.76 85.65
1999-2000 78.32 90.08 88.94
Source : Divisional Office, Raipur (C.G.)

Total Speed ratio was 88.94 in 1999-2000 increased to 98.40 in

2003-2004. This shows the improvement in the functioning of LIC in C.G.

TABLE 1.6
SETTLEMENT OF NON-EARLY DEATH CLAIMS WITHIN 20
DAYS
(LIC OF INDIA DIVISIONAL OFFICE, RAIPUR (C.G.))

Year Performance
2003-2004 99.21
2002-2003 98.52
2001-2002 95.03
2000-2001 83.20
1999-2000 92.18
Source : Divisional Office, Raipur (C.G.)

13
 Above table show that LIC settles approximately 100 percent of its
non-early death claims with in 20 days. It is a true signal of the efficiency
of the working of LIC in C.G.
Table 1.7
PROGRESS OF LIC AT A GLANCE

Year 1957 1969-70 1979-80 1989-90 1999-00 2001-02 2002-03 2003-04

TOTAL NEW
BUSINESS

Individual (Rs. In 336.37 990.03 2744.33 23319.53 91214.26 192572.31 179811.17 199698.31
Crore)

Group Premium (Rs. - 46.05 5262.06 20270.81 66619.43 99446.11 164574.44 361229.37
In Lakhs)

BUSINESS IN
FORCE

Individual (Rs. In
Crore) 1476.52 6348.09 19242.55 94823.22 536450.82 811011.00 956675.20 1113734.91

Group (Rs. In Crore) 5.29 77.17 6137.46 23049.64 76384.53 100597.64 124312.99 145103.70

No. of policies in
force (in lakhs) (*
including individual
pension plans) 56.86 140.40 220.94 408.18 1013.89 1258.76 1411.63* 1562.44
Total No. of lives
covered under
Group ** (in lakhs) @ @ 58.41 163.02 243.02 256.99 251.85 264.80

Life Fund (Rs. In

Crore) 410.40 1611.03 5818.09 24418.75 154043.73 227008.98 281664.33 337986.12

INVESTMENT (Rs.
In Crore)

a) Book value of total

investments 381.90 1514.26 5747.51 21958.80 146364.00 216883.00 265044.00 343129.00
b) Books value of
socially oriented
investments @ 513.21 2472.29 16263.38 117888.00 173370.00 213477.00 256105.00
CLAIMS SETTLED
Number (in lakhs)
including G&S @ 3.21 7.19 20.77 66.42 87.67 96.91 103.53
Amount (Rs. In
Crore) 25.00 81.36 270.88 1429.29 9211.30 14519.25 17035.81 19607.20

** Including Capital Redemption and Annuity Insurance Business @ Figures not available
Source : LIC’s Annual Reports and Accounts

14
 LIC’s Individual Business in force was Rs.1476.52 crores in 1957,
which increased to Rs.1113734.91 crores in the year 2004. LIC’s Life
Fund increased by almost 824 times from the year 1957 to the year 2004.
LIC’s number of polices increased from 56.86 lakhs in 1957 to 1562.44
lakhs in 2004. (Increased almost 27.5 times)

1.4 SUBSIDIARIES OF LIC OF INDIA

LIC of India has the following Subsidiaries

i. LIC (International) E.C., Bahrain

The overseas subsidiary of the corporation, which was established in

1989 at Bahrain, caters to the life insurance needs of NRIs in the Gulf by
issuing policies in US Dollars. The company operates in the states of
Bahrain, Saudi Arabia, Kuwait & U.A.E. through Chief Agents and in
Qatar through a Broker arrangement. The company has set up its first full-
fledged branch office in Muscat at Oman from 23rd December 2003. With
this the company has achieved its cherished objective of spreading its
wings to all the six GCC Countries. During the year ended 31st December,
2003, the Company issued 13597 policies for a Sum Assured of US $
134.10 Million with a first Premium Income of US $ 42 Million and has
registered an impressive growth rate of 26% in number of policies, 50% in
Sum Assured and 85% in First Premium Income.

ii. LIC (Nepal) Ltd.

L.I.C. (Nepal) Ltd., a joint venture between L.I.C. of India and

Vishal Group of companies in the kingdom of Nepal, was formally

15
launched on 3rd December 2001 and has successfully completed three
years of its operations. The company, for the year ended on 15.7.2004
completed 20985 policies with Sum Assured of Rs.252.19 Crores and First
Premium income of N.Rs.11.54 crores surpassing the annual budget on all
the counts with splendid margin. Its achievement to annual business target
was 139.9% in number of policies, 114.6% in Sum Assured and 105% in
F.P. income. The company also sold 1455 Group Term Insurance policies
for a total Sum Assured of N.Rs. 25.07 Crores and First Premium income
of N.Rs.9.48 Lakhs.

iii. LIC Lanka Ltd.

LIC (Lanka) Ltd., the latest joint venture company between L.I.C. of
India and Bartleet Group of Co. Ltd. was launched on 1st March 2003 and
has completed first year of its operation. The company for the period ended
31st December 2003 has completed a record business of 3485 policies with
sum Assured of SL Rs. 490 Million and First Premium Income of SL
Rs.13 Million. The company has already started creating ripples and has
surged to 8th position amongst well-established 12 insurance companies in
Srilankan market and is doing very well in the current year.

iv. LIC Mutual Fund.

The LIC Mutual Fund was launched with the basic objective of
mobilizing saving from investors spread across the country, who had no
easy access to the capital market, with a view to providing them a vehicle
for investment of their funds thereby ensuring safety, security, easy
liquidity and reasonably good returns.

16
 The LIC Mutual Fund set up as a separate Trust by the Life
Insurance Corporation of India having its central office of Yogakshema,
Jeevan Bima Marg, Mumbai, 400 021. The Trust deed date 20.04.89 was
modified through a deed of modification as mentioned in schedule III of
SEBI (Mutual Fund) Regulations 1996. The Trust Deed will not be
modified without the prior approval of SEBI and Unit holders’ approval
will be obtained where it affects the interest of the Unit holders. LIC has
made an initial contribution of Rs.2 crore towards the Trust Fund. The LIC
Mutual Fund trustee Co. Pvt. Ltd. is formed and appointed to supervise the
activities of the Fund. The Trustee company has entrusted the work of
management of the Fund of Jeevan Bima Sahayog Asset Management
Company Ltd., which is a company promoted by the Life Insurance
Corporation of India with an authorized capital of Rs.25 crore. Senior
officials on deputation look after the day-to-day operations of JBS AMC
LTD., the investment manager to LIC MF, from the LIC of India.

The LIC Mutual Fund mobilized over Rs.8750 crores (gross

collection) in the last financial year i.e. 2003-04 and is currently managing
assets under management of Rs.4375 crores (as on 31.07.2004). The LIC
Mutual Fund has redeemed 22 of the close-ended schemes giving fairly
good returns to the investor. It has pioneered open-ended schemes in the
industry. The present 13 open-ended schemes from the LICMF stable
include LICMF Bond Fund, LICMF Govt. Securities Fund, LICMF
Children’s Fund, LICMF Short Term Plan, LICMF Floating Rate Fund,
four pure Equity schemes LICMF Tax Plan, LICMF Equity Fund, LICMF
Growth Fund, and LICMF Index Fund and three Income and Growth
scheme LICMF Balanced Fund, LICMF Monthly Income Plan, LICMF
Unit Linked Insurance Scheme and one liquid scheme, LICMF Liquid

17
Fund, while the two close-ended schemes include Dhan Tax Saver 1995 &
Dhan Tax Saver 1996.

The LIC Mutual Fund has valued the trust of its investors and
adopted it to a conservative approach to investment to ensure a consistent
performance. It has withstood the test of time by remaining active in all
good and bad phases of the Indian economy.

18
 TABLE 1.8
FINANCIAL INTEREST OF LIC IN SUBSIDIERIES

Names of Subsidiaries
Particulars LIC (Nepal) LIC LIC
Ltd (International) (Lanka)
EC. Bahrain Ltd
1. Incorporated in Nepal Bahrain Sri Lanka

2. Proportion of holding 55% 97.80% 75%

company
3. The proportionate
amount of Assets,
Liabilities, Income
and Expenses
Assets 1814.58 75406.09 284.91
(816.52) (52363.68) -
Liabilities 68.23 69050.43 42.61
(123.52) (45516.17) -
Income 593.90 32386.18 79.55
(191.25) (20925.18) -
Expenses 148.46 31956.41 174.75
(79.30) (20523.53) -
4. Share in capital Nil Nil Nil
commitments
5. Share in contingent Nil Nil Nil
liabilities
Source : LIC’s Annual Report and Accounts
* Figures in brackets ( ) indicate previous year’s figures.

LIC have highest holding (97.80%) in LIC (International) among the

subsidiaries. LIC’s Subsidiaries have no contingent liabilities.

19