Success of Multi-Product Distribution of LIC

Customer loyalty depends on satisfaction of his multiple needs. They know them only when they are told about those needs. The Life Insurance Corporation of India has devised several life policies to satisfy these diversified needs of the customers.

The research cell has explored these policies which are put in circulation. The outcome of each new product is tested generally for two-three years.

On the basis of their acceptability by public, they are launched permanently in the field. Multi-product distribution has become a success for LIC, but it has failed on multi-channel. Only life insurance offices are sellers of the product.

If the distribution channel is increased; people may purchase more diversified products from Financial Institutions, educational houses, hospital, health centres, village community centres, commercial and regional rural banks, public enterprises and big business houses may be appointed as distribution channel of life insurance policies.

The LIC has not thought on this front but the researchers conducted by me under exploring insurance avenues have revealed glaring avenues of insurance. The paper analyses the success of multi-product distribution of Life Insurance Corporation of India.

Analysis of Multi-Product :

The multi-product distribution of Life Insurance Corporation of India (LIC) has been analysed less than four periods:

1. Period of early growth (1956-1970)

2. Period of Fluctuation Business (1970-71 to 1979-80)

3. Period of Reorganisation (1980-81 to 1989-90)

4. Period of Product Diversification (1990-91 to 1997-98).

The period division has been done on the basis of product introduction. Early growth has shown introduction of the traditional policies and product diversification has demonstrated multiple policies to meet the requirements of policyholders.

1. Period of Early Growth (1956-1970) :

The life insurance business in India increased rapidly during 1956-70 after nationalisation of life insurance business in January 1956; the private insurers were not taking serious interest in insurance particularly in rural areas. The average growth rate of business was about 5.00 percent per annum during this period.

New Scheme s:

During the period of early growth salary saving scheme and non-medial schemes and anticipated endowment insurance were introduced.

Salary Saving Scheme:

The salary saving scheme was introduced to help salaried employees in paying their premium regularly. The employer is required to deduct premium from salaries and remit them to the Corporation (LIC). It waves the usual monthly extra and gives rebate on the tabular premium. It was introduced in 1958 booking only Rs. 13.93 crore during the year.

The number of new policies under Salary Saving Scheme has been constantly increasing from 4.86 lakh in 1970-71 to 23.22 lakh in 1996-97. Similarly, the sum assured has also increased from Rs. 252.06 crore in 1970-71 to Rs. 10578.83 crore in 1996-97 under this scheme.

The percentage share of salary saving scheme in the total individual insurance has not been less than 18 per cent in any year. It reveals that the LIC is relying on salary saving scheme for its business.

If it is compared with the different segments of policyholders, it has major role in insuring a large number of people under salaried class. The different segments of potential policyholders are businessmen, laborers, advocates, farmers, people in small scale industries, traders and transporters.

The salary saving scheme is mainly confined to community and personal services which account only 12.29 percent of total national income. There is enough scope of expansion of this scheme to other sectors, too, such as manufacturing, construction, electricity, transport, communication, trade, hotels, restaurants, etc.

The number of employee’s ranges from 14 lakh in agriculture to 102 lakh in community, social and personnel services, whereas the total numbers of employees have been 259 lakh in all sectors.

The number of policies issued under salary saving schemes have not been more than 38 lakh in any year. The self-employed are not included under this schemes. Thus, there is enough scope of expansion of salary saving scheme.

The salary saving scheme is very traditional in its procedure. There is need of its renovation, use of computers have started. If the LIC links its computer with those of employees associated with salary saving scheme, will be immediately credited in the account of LIC.

Thus, crores of rupees lying unsettled with the employers will come in use with LIC. The return of premium saved would increase tremendously.

Non-Medical Scheme: Non-medical scheme was introduced in 1960 with a view to reduce premium rates in respect of lives, where medical examination is not likely to produce any tangible results. Many employees of government, armed forces and public sector enterprises have been insured under this scheme.

Many employees of government sector, public enterprises, educational institutions, defense forces and so on are insured under non-medical schemes. More than 50 percent of total individual insurance is coming under medical examinations in certain categories of people. The conditions of non-medical examination have been laid down to safeguard any loss to the LIC.

Anticipated Endowment Policy: Anticipated endowment policy increased due to inherent merits of periodical payment. It was introduced in 1962-63. The importance of anticipated endowment policy increased upto 1975-76. It was popular because of three reasons viz.

(i) policy holders prefer endowment policy where a part of the sum assured is returned in installment earlier than the normal maturity date while enjoying the benefits of insurance protection during the currency of policy.

(ii) Income Tax relief continues to be available for the full term of the policy even though part of the sum assured- is received earlier.

(iii) Policyholders continue to receive bonus of the full sum assured although 40 per cent of the sum assured is returned to the policyholders before maturity.

Anticipated endowment insurance declined from 9.93 per cent in 1962-63 to 0.92 per cent of the total individual insurance in 1980-81.

It has been closed and now children’s anticipated policy is in vogue which amount to Rs. 9.80 crore in 1996-97. Whole life and without profit schemes were declined as policyholders were not interested in them because of their long term agreement.

2. Period of Fluctuating Business (1970-71 to 1979-80) :

Life insurance business during 1970-71 to 1979-80 experienced wide ups and downs. Indian business declined in some years very drastically due to natural calamities and economic distress.

The average rate of growth was below 4.00 per cent per annum. Industrial relations were not very much favorable during this period. Financial institutions posed problems of competition.

People prefer bank deposits and postal saving certificates. In the later year of the period discipline and work culture improved. Consequently business increased in the later part of the period.

New Schemes:

Money Back Policy:

It was introduced in 1976-77 and got good response from public as the sum assured was 36.18 per cent and the policy was 28.15 percent of total individual business in 1980-81. People are interested in those policies which provide more benefits to policyholders during the currency of policy.

From the detailed analysis of policy-planes, it has been revealed that people like such types of policies which provide money during policyholder’s life for meeting different types of needs of life.

They do not prefer those policies which provide money only at the end of certain period whether maturity or death. People prefer saving to protection. The percentage of sum assured under money back policy was 36.18 per cent to total individual insurance in 1980-81.

The numbers of policies issued under Money Back Policy have been varying from the lowest number of 34.29 lakh in 1990-91 to the highest number of 42.41 lakh in 1996-97. Similarly assured has increased from Rs. 12,979.08 crore to Rs. 19,426.77 crore in the corresponding years.

Their percentage to total individual insurance has been 31.61 percent in 1994-95 and 41.28 percent in 1992-93 in case of policy number and 31.49 percent in 1995-96 and 45.96 percent in 1990-91 in case of sum assured. It reveals that more than one third of individual business came from money back policy.

3. Period of Re-organisation (1980-81 to 1989-90) :

The new business of LIC has increased by more than 7 percent per annum. The branch offices were given more authority. Decentralisation has yielded more business. New policies were introduced.

Group insurance business increased during this period. The Group Insurance Scheme has several advantages over individual insurance.

It has low cost and higher benefits. Many underprivileged persons also get the benefits of insurance. LIC laid considerable stress on development of Group and Superannuation Schemes because it is only through the group approach that rapid progress of insurance and protection of life insurance cover to society is possible. Employers can give the benefits of insurance through this scheme.

Group Insurance Schemes:

Group Insurance Schemes were extended to various groups such as teachers of primary and junior high schools, employees of State Electricity Boards of several states, employees of central and state governments, employees of three defense services, employees of big business houses, employees of cooperative societies in Gujarat, Maharashtra, Tamil Nadu, Uttar Pradesh and Orissa. There are renewable term insurance issued to a particular group.

If death does not take place within the contract period, the insured is refunded the amount of premium along with the prevailing rate of interest. Persons who cannot get the policy on medical ground can get insurance coverage under this scheme.

Persons who cannot save adequate amount for payment of premium can also get the benefits of insurance if their employers agree to pay the premium amount.

Superannuation Scheme:

The scheme provides pension (annual maturity) benefits to retired employees when they are old and not able to earn for their maintenance. The numbers of beneficiaries and schemes have increased firstly during this period. The superannuation is becoming more popular because of people’s preference to investment.

Janashree Bima Yojana :

On 10th August 2000, the Janashree Bima Yojana, a group insurance scheme was launched in order to extend the benefit of Social security and life insurance cover to poorer segments of the population.

This scheme is being implemented with the help of non-governmental organisations and self-help groups who will help in identifying the groups of persons to be covered.

In addition to persons below the poverty line, persons marginally above the poverty line also can be covered under the scheme, which provides cover and cover against accidental death and disability.

During 2000-2001 3,35,052 new lives were covered under the 40 approved occupations pertaining to the Social Security Schemes and the Janashree Bima Yojana.

The First Premium Income under these schemes during the year 2000-2001 registered a significant increase of 192% and grew to Rs. 2.33 crore. During the year 778 new group schemes were brought into the book.

The number of new lives covered was 98,603 under various Group Superannuation and Annuity Schemes which were for a sum of assured of Rs. 70,614.80 crore during 2000-2001.

The business under group insurance and superannuation schemes has been constantly increasing. The policy number and members covered under group insurance and superannuation have increased to the level of244.48 lakh in 1996-97.

The shares of group insurance and superannuation scheme have been 21.40 percent of the total policy and members. The assessed sum under this scheme was 24.49 percent of the total insurance in 1980-81. It accounts about one fifth of the total business of Life Insurance Corporation of India. The people are made aware of this scheme.

4. Period of Product Diversification (1990-91 to 1997-98) :

The Life Insurance Corporation of India realised the importance of product diversification. Business increased by selling different types of policies. Product diversification is essential to meet the varying needs, changing preferences and rising aspirations of the customers.

The importance of whole life policies and endowment assurances are reducing gradually, that total sum assured under these policies are increasing although in relation to total individual business, they are not increasing.

Money back policies have increased to the level of 20,000 crore. It is prominent assurance policy because of its advantages of investment. The amount of children’s anticipated endowment is reducing year after year. It has come down to nearly 10 crore.

Jeevan Raksha Policy has yielded insurance to the tune of Rs. 1,600 crore in 1996-97. It is rapidly increasing. Similarly Jeevan Mitra has crossed the level of Rs. 1,900 crore. Jeevan Sathi is also becoming popular. The sum assured was Rs. 566.70 crore in 1996-97.

The marriage Endowment and Educational amenities have increased considerably to meet the requirements of marriage and education of children. Convertible whole life has gone down to the level of Rs. 165.74 crore in 1996-97.

Jeevan Balya/Jeeven Kishore have been popular as they crossed the level of Rs. 800 crore. Similarly, Jeevan Chhaya has been gradually increasing although Bima Sandesh declined to Rs. 51.78 crore in 1996-97.

Those policies are becoming popular, which have features of investment and periodical payment along with coverage of risk.