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Opinion - Life Insurance
Money & Banking - Insight
Life begins at fifty

S. Subramanyan

From a modest beginning to a mammoth financial institution, LIC has come a long way.

Life Insurance Corporation of India is celebrating its golden jubilee today (September 1). From a modest beginning to a mammoth financial institution that integrates in it 245 companies of different sizes, LIC has come a long way.

In 1956, LIC generated from 5.67 lakh policies new business worth Rs 200.28 crore . In 2005-06, LIC sold an astronomical 3.16 crore new policies. Its total income for the year was around Rs 1,30,000 crore, of which premium contributed Rs 87,600 crore and investments generated Rs 36,150 crore.

Its Life Fund as on March 31 is expected to be around Rs 4,62,662 crore, according to the July issue of the organisation's magazine Yogakshema. LIC is at striking distance of the milestone of Rs 1 lakh crore for premium income.

Any report of LIC's achievements will not be complete if it does not take into account the vast army of insurance agents — over 10.52 lakh as on March 31. LIC is rightly addressing the issue of augmenting this force, not only in numbers but also in productivity.

The insurance giant is successfully transforming itself to meet not only the challenges posed by the opening up of the insurance industry but to the business dynamics of the global financial services industry. It is steadily creating alternative distribution channels and has adopted the bancassurance model.

The LIC chairman, Mr T. S. Vijayan, while addressing the annual conference of Divisional Managers in May, had observed that "during 2005-06, the alternative distribution channels continued to show high growth potential by registering a growth rate of 109.65 per cent on policies and 81.62 per cent on first premium" and set LIC's focus for the current year at "leveraging bancassurance partnerships in a big way".

As for LIC offering innovative new products, mention must be made of the Bima Gold policy that sold over a crore policies in just seven months of its introduction.

IT & Business Process Reengineering

On the information technology and business process reengineering front, too, LIC made substantial progress last year. Two important achievements were the inauguration of the Satellite Sampark Offices and the Enterprise Web Portal What needs special mention is that the technology was developed totally in-house.

The issue of LIC's market share is, rightly, on top of its agenda. While cataloguing its achievements, the LIC Chairman also reminded his team of the urgency to show a higher growth rate — in the number of policies and the premium income — to enable LIC maintain its dominant market share.

Dr Robert Grosse, a Professor of International Business and Director of Research, The American Graduate School of International Management in Arizona, in his book, The Future of Global Financial Services: Global Dimensions in Business (2004), mentions three fundamental technological shifts defining the competitive financial services landscape of the 21st century: One, distributed service provision. Two, the technological change that is impacting internal management systems. And, three, financial engineering. Viewed in this context, LIC is moving along the right lines to meet the challenges of the 21st century and to face up to the new, opened-up milieu in the insurance industry.

Insurance scenario

Even in the late-1980s LIC had made a modest beginning in what it called `multi-dimensional activities' when it set up in 1989 its own mutual fund and housing finance company.

In the early 1990s, when the new generation private sector banks were being set up and state-owned financial institutions were also starting their own banking outfits, LIC toyed with the idea of setting up its own bank. But this idea seems to have given way, instead, to the strategy of concluding bilateral arrangements with several banks and financial outfits to sell its insurance products.

Possibly, this thinking was due to the fact that LIC's first priority was to survive and consolidate in a competitive environment and not divert its energies and resources by setting up a bank.

Now that it has operated successfully in a competitive insurance market, LIC can consider the idea of its own bank. It should not, in other words, be left lagging behind other similar institutions that have their own banks.

But it should also keep an eye on the possibility of the existing fragmented regulatory structure giving way to a unitary framework and be prepared to adjust to that eventuality, however distant it may be. While debating the Bill to open up the insurance industry, the then Finance Minister had assured Parliament that the ownership structure of the state-owned insurance companies would not be altered.

In the name of harmonising the various laws governing the insurance business, it is hoped that the Government will not disturb the LIC Act, 1956, a special legislation that gave birth to LIC and which facilitated its growth in these five decades.

Any celebration of LIC would be incomplete without a tribute to the former Finance Minister, C. D. Deshmukh, who in 1956 piloted the Bill nationalising life insurance.

He wrote in his autobiography that when all else is forgotten he should be remembered for this act of his (that created LIC). Life Insurance Coporation will surely ensure that.

(The author is a former Executive Director of LIC.)

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