What are the main corporate objectives of LIC?

What are the main corporate objectives of LIC?

The objectives of nationalisation have been incorporated in the form of corporate objectives of LIC.

If the objectives of nationalisation are not fulfilled, whether the private insurers can fulfill those objectives, what can be the next step if both institutions, i.e., the nationalised and private insurers have not achieved the objectives of insurance? These questions are dispassionately analysed.

Rural Insurance:

The nationalisation of life insurance business in 1956 had aimed to spread the gospel of life insurance business in the remote corners of the country.

In the word of the then Finance Minister: “The purpose of nationalisation was to see that the gospel of insurance is stored as far and wide as possible so that we reach out beyond the more advanced urban areas well into the hitherto neglected rural areas.

Millions of lives in rural areas were left uninsured because the private insurers did not like to carry their business there. Now question arises whether private insurers including foreign companies would like to conduct their business in rural areas.

The answer is certainly not because they would not be getting profit there. No private insurer would like to do business on loss.

If the government is not agreeing to this logic, then why private airlines are not operating their business in non-remunerative areas. The nationalised institutions are doing satisfactory business in rural areas.

They have national mission and performing the business in urban as well as rural areas. The insurance principle, inertia of large number is being followed by LIC and GIC.

No private insurer can work longer on national mission to help peoples ‘progress and security because they have the main motives of profit- making.’ The Life Insurance Corporation has developed corporate objectives.

“Spread life insurance much more widely and in particular to the rural areas reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost”

The rural business was unheard before 1955. After nationalisation, it has increased to Rs. 21,570 crore which was 39.0 percent of individual new business. Rural business of LIC in 1995-96 was 49 lakh policies out of the total 110 lakh policies issued in that year giving rural business to the extent of 45% of total new policies issued.

Can anyone think of such achievement by private insurer? Logics are hurled that nonbanking institutions are fetching maximum business from rural areas. It should be analysed from safety and security point of view.

The businesses procured by them are not safe and secure because many non-banking institutions are getting business pressurising the rural people.

It should be known that many non-banking institutions are eloping with the money of people. They open an office for some months and then close the office forever after extracting money from the people.

One finds it difficult to understand whether the government is unaware or unable to prevent such nefarious activities.

If the government is unable to govern, it should not talk of privatisation or denationalisation of insurance industry. LIC and GIC are national institutions which are working for the nation and people.

The LIC has covered a large number of people by insuring them under group insurance otherwise they would have been uninsured on account of low premium paying capacity. The new business under group insurance increased from Rs. 18.33 crore in 1966-67 to Rs. 50,651.43 crore in 1994-95.

All the four subsidiaries of General Insurance Corporation have tried to procure maximum business for the benefit of people at large.

General insurance in rural areas have increased considerably under Personal Accident Social Security amounting more than Rs. 300 crores and Hut Insurance Scheme amounting about Rs. 300 crore. Hit and Run schemes have benefited a large number of beneficiaries.

Life Insurance Corporation of India has formulated corporate objective “Meet the various life insurance needs of the community that would arise in the changing social and economic environment.

The total payment under social security group/schemes amounted more than Rs. 240 crore in 1991-92 and Rs. 550 crore in 1995-96. The LIC and GIC have been working hard to benefit rural people through its branches which have been respectively 2024 and 2997 as, on March 1996.

The second objective of nationalisation of life insurance business was to conduct business with utmost economy as the Finance Minister said, “The business must be conducted with utmost economy and with the full realisation that money belongs to the policyholders.

The premium must be no higher than is ‘warranted by strict actuarial consideration”. The LIC has accepted the corporate objectives. “Act as trustees of the insured public in their individual and collective capacities.

Conduct business with utmost economy and with the fuurealisation that money belongs to the policyholders”. The trusteeship principle has been carried by the LIC as it has tried to reduce the expense-ratio.

The expense ratio which was very high before nationalisation was brought to a lower level in 1995.

The overall expense ratio declined from 27.20% In 1957 to 21.35% in 1995 and the renewal expense ratio have come down from 15.89% to 6.32% in the respective years. The corporation would have reduced the expense ratio further had there been complete computerisation.

General Insurance Corporation along with its subsidiaries has attempted to reduce the expenses considerably. The benefits of reduced expenses have been given to the policyholders in the form of enhanced bonus and reduced premium.

The bonus of life policy per thousand sum assured has increased from Rs. 16 in 1956 to Rs. 86 varying to Rs. 95 in 1996 on whole life policies and Rs. 12.80 in 1952 to Rs. 69 varying to Rs. 78 on endowment policies.

The lapse ratio to mean life insurance business in force has gone down from 7.6 per cent in 1955 to 3.1 per cent in 1991-92.

With increase life fund from Rs. 410.40 crores in 1956 to Rs. 72,780.06 crore-in 1996; the LIC has achieved its corporate objective, i.e., maximise mobilisation of people’s savings by making insurance linked savings adequately attractive.

The life insurance carrying capacity that is the ratio of business in force to national income has increased from 7.95% in 1951 to 30.30 per cent in 1995-96. The LIC has provided adequate financial cover to the people of India.

The rising rate of business in force has clearly shown that the, LIC has attempted to provide adequate financial cover to the people of India. The premium income as compared to national income has revealed the capacity of LIC for enhancement of business.

The third objective of nationalisation of life insurance business was to develop national economy as put in the words of the then Finance Minister, “Help development of National Economy in the right perspective for the benefits of the societies as a whole.”

Based on the objective, the corporate objective of LIC has been, “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 LIC is performing this job through decentralised investment. The percentage of LIC investment, to national income has increased from 3.4 percent in 1956 to 6.26 percent in 1996. It had contributed to Rs. 184 crores during the Second Plan and Rs. 40303 crore during four years of Eighth Plan.

No private sector enterprise can sacrifice so much for nation. It is illogical and anti-national to think to hand over the most contributing financial sector to private entrepreneurs including foreign companies.

The money procured in the form of premium is helping reduced inflationary pressure because so much of money is withdrawn from circulation and is chantielised for productive sector.

The inflationary gap caused by the difference of money supply and production has been reduced at both the fronts, i.e., reducing money supply through premium collection and increasing production through investment.

The investment of LIC has increased from Rs. 372 crore in 1956 to Rs. 65057 crore in 1996, whereas the premium has increased from Rs. 88.65 crore to Rs. 14182 crore which were 0.2 percent and 2.4 percent respectively of the money in circulation, in the respective years.

The diversified investment policy of LIC has served almost all the industries, all the states and infrastructure from the drinking water facilities to development of hardcore industries; LIC has invested for their growth.

The corporate objectives of LIC say. “Meet the various life insurance needs of the Community that would arise in the changing social and economic environment”.

The LIC investment in public sector has been approximately 80 percent of its total investment. Similarly, the general insurance companies have invested about 65 percent of its total investment in public sector. It has been varying from 6.3 percent to 73 percent in different subsidiary companies.

The Life Insurance Corporation of India has been contributing in the socio-economic development through its payment to government.

Government has invested only Rs. 5 crore as capital of LIC but has received Rs. 160.94 crore as dividend in 1995-96. It is unthinkable ratio of dividend which is 32 times of capital employed.

The tax money given to government is very high amount i.e., more than Rs. 500 crore. Can any private insurer pay so many taxes to government and government may receive so much high of dividend rate? Certainly not.

Therefore, the logic of government to denationalise the LIC is irrational and full of unwise step. Similarly, General Insurance Industry has given more than Rs. 100 crore as income tax and more than Rs. 800 crore as dividend. Taking the total funds received by life insurance and general insurance industry together, the government has received more than Rs. 1,600 crore in 1995-96.

If government is going to part with this revenue by throwing the insurance industry to private entrepreneur’s doubts may arise on the rational functioning of the government.

It may be on account of some concrete reasons e.g., government is being run by irrational people, government does not care for the welfare of society, government is thinking to borrow money from international agencies rather than mobilising domestic savings. The scope of domestic saving is considerably high in India.

There is need of honest and sincere attempt to mobilise people’s saving for people’s welfare. Government should not adhere on some of the reports on insurance because they have been prepared on government’s liking and people’s mood. The reports cannot be relied on considering the broader and wider interest of the country.

It has been anticipated that the funds required for Ninth Five-Year Plan can be met by insurance industry alone if the industry is given freehand for operation and investment.

There will not be any need for inviting foreign investment and incurring socio-economic and political risks. Privatisation of insurance industry is totally out of context, irrational and antinational decision.

Life insurance business was nationalised with the objective of rendering prompt and efficient services to policyholders. Consequently, corporative objective, “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.

The business per active agent has increased to Rs. 10,63,101 in 1995 from the lowest level of Rs. 31,000 in 1955. The LIC has fulfilled the responsibility of claims payment of which amounted to Rs. 4,532.22 crore on 42 lakh policies in 1995-96 from the lowest figure of Rs. 28.7 crore in 1956.

Outstanding claim which was 50% in 1956 came down to the level of 5.99 % in 1995-96. This shows that LIC has attempted hard to render prompt and efficient services to take policyholders.

The business of LIC has been constantly increasing. The productivity in terms of new business has increased from 26 policies in 1957 to 89 policies in 1994-95.

An employee who was required to serve 185 policies in 1957 is serving 539 policies in force in 1994-95. No one can argue that employee’s productivity has declined as has been in other public sector enterprises.

The case of LIC is totally different from other public sector units which are running on losses and have been under constant pressure of government. LIC and GIC having the benefits of corporate character under statutory act of 1956 and 1972 are demonstrating its efficiency.

They improve further if political interference whatever is there is eliminated from the horizon of the business. Statutory corporations having their autonomy and management techniques can perform better than any private entrepreneurs or government organisation.

Departmental undertakings are always on the mercy and methods of government. The Indian Government has vividly demonstrated its corrupt practices during the last five years and cannot be relied upon for better management of nation and industry.

But statutory corporations being free from direct involvement of government and performing efficiency in India and helping the society at large which is not possible by individual entrepreneurs who are always profit minded and least bothered to public welfare and nation-building.