Short notes on the Life Insurance business

Life insurance business is analyzed under new business individual insurance, rural new business, development of new products, new business projects under group insurance, new business projects under group superannuation schemes, business in force, individual and group schemes, causation of policies, valuation, working results, investment operations, number of active agents and their business, and social responsibilities. New Business Individual Insurance

New business of the Life Insurance Corporation of India has increased rapidly after decentralisation of its functions in 1985-86. The impact has been clearly observed in 1990-91 when the total number of life policies has crossed 80 lakh of policies assuring more than Rs. 25,000 crores. During five years (1990-91 to 1994-95).

The new business has additional increment of about 20 lakh policies of Rs. 25,000 crores. It reveals that the end of the century will witness total new business of Rs. 80,000 crores under 150 lakh of policies.

LIC should reach to the level of Rs. 1,01,000 crore new business under 176 lakh of policies in 2004-2005. With the presence of foreign insurance business in India, it has to compete hard.

The existing normal servicing has to be improved to get its outstanding place in insurance business. Business outside India has increased slowly. It is not very satisfactory as the number of policies per year has not increased more than 9 thousand. Sum assured increased by about Rs. 30 crores only per annum.

It is to be seen how much insurance business outside India would increase after entry of foreign insurers. LIC has to strike outside India as foreign insurers plan to achieve maximum business which was untapped by LIC. Challenges before LIC would be greater in the coming years.

It is expected that life insurance business would take new turn during the years as people would be fully aware of insurance as a result of massive advertising practices of foreign insurers who believe in offensive advertising and sophisticated services.

Many consumer goods have increased their market share as foreign companies have resorted to massive advertising. Coming years would be more materialistic and full of uncertainties.

Science and technology would reach to common man. They would not spare any opportunities untapped. If income and uncertainties have increased, insurance desire would convert into insurance-craze. Rural New Business

Rural LIC business has increased from Rs. 10,294.55 crores under 36.15 lakh policies in 1990-91 which increased to Rs. 21,263.59 crore fewer than 52.47 lakh policies. The percentage share of policies to total new policies increased from 42.5 lakh to 49.2 lakh during the period.

It is expected that the sum assured would increase upto Rs. 30,000 crore fewer than 72 lakh policies in 1999-2000, and Rs. 45,000 crore fewer than 85 lakh policies in 2004-2005.

The percentage share of rural business in the total business would not change. The LIC would not devote much time and energy for procuring new business in rural areas, as it has to compete with foreign insurers who would devote only in urban areas.

Profit motive is the basic object of foreign insurers. They would devote for enhancing business. Rural business would be ignored by the LIC and foreign insurers.

The new business of LIC has increased to the level of Rs. 179886.66 Crore under 218.32 Lakh policies in 2004-2005 after touching the highest figure of Rs. 199048.52 Crore under 264.68 Lakh policies in 2003-2004. It is expected to enhance further in 2005-2006.

It reveals that the life insurance new business has increased more than the forecasted at straight line fitting methods i.e., Rs. 101000.00 crore under 176.00 Lakh policies in 2004-2005. Thus the prospect of life insurance is very light in India.

The rural new business of LIC has increased to the level of 25.18 per cent under 22.97 per cent policies in 2004-2005. It is more than expected in 2000-2001 the traditional definition has revealed 47.78 per cent of sum assured and 55.53% of policies as compared to 14.59 per cent and 18.18 per cent respectively based on latest definition of IRDA.

The role of LIC in enhancing rural business would socially be essential but commercially, it would be loss-making endure because LIC’s urban share would be snatched by foreign and domestic insurers.

The inertia of large-number applies in insurance. The mortality is comparatively lower in urban people than that of rural-people. Cream-people would be insured by private insurers, whereas the inferior stuff would be left to the LIC.

It would cause deterioration in rural business. The spirit would not enhance for social-upliftment because profit is the index of achievement for which every insurer would aspire their functions and policies. Development of New Product

People are not attracted with the traditional insurance products (policies) like whole-life, endowment and pure endowment. During 1996-1997, Jeevan Suraksha, Jeevan Sneha, and Jeevan Sanchaya were introduced. Under Jeevan Suraksha plan, retirement income is provided from a chosen date.

The policy is with life cover but can be taken without life cover under certain conditions. The policyholder taking policy with life cover provides minimum of 50 per cent of the target pension to spouse on death during the deferment period. On vesting date, the policyholder has the option to receive 25% of the notional cash options in lumps urn and balance in annuity.

Jeeuan Sneha:

This plan is a without profits money back type plan with the added features of guaranteed addition. Loyalty addition, encashment of survival benefit as and when required.

Flexibility to pay premium in advance, in-built accident cover, free insurance cover: for a period of 3 years from the date of first unpaid premium provided at least 2 full years premium have been paid and option to receive pension in lieu of maturity benefits.

Jeeven Sanchaya:

This is a without profits money back type plan with provision of loyalty addition and guaranteed addition. Accident benefit will also be granted under the plan with an upper limit of Rs. 5,00,000 in addition to existing limit of Rs. 5,00,000 under other plans. New Business under Group Insurance

Group insurance provides insurance cover to those persons who are unable to purchase their own policies. It is purchased mainly by different institutions for the benefit of its employees. Many new organisations are approached by the LIC to insure their employees’ life under group insurance and superannuation schemes.

New Group Insurance:

The number of new members insured under new group insurance has been highest i.e., 34.83 lakhs in 1991-92 when a large number of institutions was attached to this scheme. Since 1993-94, the number of new members under new schemes has been constantly increasing.

The annuity amount (sum assured) was Rs. 3837.23 crore in 1991 -92. There was no definite trend in the business of group insurance, but it is expected to increase to Rs. 4000.0 crore under 20 lakh policies in 1999-2000 and Rs. 4200.0 crore under 21 lakh policies in 2004-2005.

New Group Superannuation Scheme:

The popularity of pension schemes are increasing rapidly. LIC has take some of its efforts in this direction, but it is negligible. The new members covered under group superannuation scheme have been less than a lakh during 1990-91-1995-96. It has increased slightly to 1.25 lakhs in 1996-97 and is expected go upto 2.00 lakh by 2005.

It is not encouraging sign. LIC has to effort hard in this direction. The minimum expected annuity of Rs. 200.00 crore has to be crossed by 2005. However, considering the late entry of LIC in this field, the progress is comparable with other private insurers.

The new group insurance has increased to Rs. 117662.56 crore covering 81.00 lakh members in 2004-2005. It is more than the expected of Rs. 4200.00 crore covering 21.00 lakh. Similarly Group Insurance has reached to the level of Rs. 214.90 crore as compared to expected of Rs. 50.00 crore although it has declined to Rs 82.50 crore in 2004-2005.

The individual business in force has increased to Rs. 1032053 crore under 1630.51 policies in 2004-2005 whereas the expected business was Rs. 706000 under 1204.00 policies in the same year. It is realised that the real business have always been higher than the expected business the prospects of insurance business is very high.

The group insurance business in force was Rs. 136286.92 crore for 306.50 Lakhs members in 2004-2005, and superannuation was Rs. 1916.64 crore covering 12.73 lakh members on the other hand the expected business was Rs. 118.000.00 crore for 250.00 lakhs members of group insurance and Rs. 1470.0 crore for 14.70 lakhs members of group superannuation scheme.

It is very clear that the real business has been behaving faster than the expected. It was also correct in 1999-2000.

Business-in-Force

Business-in-force has been constantly increasing along with bonus amount. It has been analysed under individual assurance and group insurance during last decade of 20th century.

Individual Assurance:

Business-in-force (individual assurances) has increased from Rs. 1, 19,179 crore in 1990-91 to Rs. 3,44,619 crore in 1996-97. It is expected that the sum assured and bonus would be Rs. 4,50,000 crore in 1999-2000 and Rs. 7,00,000 in 2004-2005 under 950 lakh policies and 1200 lakh policies respectively in India. Business outside India is not very encouraging.

Number of policies would be expected to go up to 4.00 lakh for Rs. 6000 crore sum assured in 2004-2005. Thus, the total business in force has increased to Rs. 706000 crore. It is the minimum amount expected to be achieved in the beginning of 21st century. If LIC is unable to achieve the expected amount of business in business, its effectiveness is not praiseworthy.

Group Insurance:

Business-in-force (group insurance) has increased from Rs. 30,501.57 crore in 1990-91 to Rs. 64,66.60 crore in 1996-97. Number of members increased from 169.51 lakh to 238.97 lakh during the period, which is expected to be 350.00 lakh in 2005.

It is the minimum expected business that Rs. 1,18,000 crore would be in 2005. If LIC is unable to achieve that much, it would be a failure in this field. Group insurance is the cheapest form of insurance available to people. It is based on term insurance.

Group Superannuation Scheme:

The amount of annuities has increased from Rs. 253.12 in 1990-91 to Rs. 545,59 in 199.6-97 and is expected to go upto Rs. 1470 crore in 2005. Similarly the number of members is expected to upto 14.70 lakh in 2005 although it was 2.43 lakh in 1990-91. LIC must increase its business at faster rate as there is enough scope of superannuation business in India.

The reposition of policies has shown dismal results as the total lapses for three years in 1998-99 had slouched the English figure of 31.2 per cent of new business. It was 26.5 per cent of new business in 1999-2000 although the expected was 25.5 per cent. The per cent of Net lapses to mean life insurance in force has not been declining. It remain constantan 5.5 per cen.

The total surplus has increased to Rs. 13952 crore in 2004-2005 as Rs 7000 expected. It is much more than the expected figure. Similarly the shares of central government and taxes paid to government have been much higher than expected. It shows that LIC has worked hard for the development of insurance business. Causation of Policies

The new business increased firstly but some of them did not continue for the stipulated period. They are known as lapsed policies. It should be analysed systematically.

It reveals that the percentage of net lapses to mean Life Insurance Business in force has gone down from 6.0 in 1990-9116 5.1 in 1996- 97 and is expected to go down to 5.5. in 1999-2000 and 4.0-in 2004-2005.

The net lapse ratio at mean duration has gone to 17.0 percent of new business during one year of new business.

The total amount of percentage of percentage to new business has been 25.4. percent in 1990-91 which has gone upto 29.3 percent in 1992-93. It reveals that more than one fourth of new business did not continue for its term. It is failure of LIC and increase discredit and loss of expenses of business.

If it is not very serious of its business loss the private insurers would procure higher amount of business. However, it is not correct to believe that private insurers would not face causation problems. In any case, it is great drawback of LIC’s business.

Valuation of Results :

The valuation surplus of LIC has increased from Rs. 1800 crore in 1990-91 to Rs. 3967 crore in 1996-97 and is expected to go upto Rs. 3000 crore in 2004-2005. The share of government is 5 percent of surplus.

Thus, it should be Rs. 350 crore in 2005 and tax amount would be Rs. 1050 crores in that year. Reversionary bonus is expected to increase to 125 per thousand sum assured on whole life policies, and 100 per thousand sum assured on endowment policies.

The LIC must meet the expectation of people at higher rate because the sum assured is highly hit with inflation.

A person insured for 10 lakh will not get Rs. 10 lakh in real term after 20 years. Although long term activities/ investment/agreement is bound to be hit of inflation, LIC has to be very careful and the bonus rate is to be increased for the benefit of policy and compete with banking deposits:

Working Results :

Working results is calculated by finding the life insurance fund which is equal to total income minus total outgo. Total income includes premium income, income from investments and miscellaneous. Premium income is denoted by first year premium and renewal premium as well as single premium.

Total outgo includes commission etc., to agents, salary and other benefits to employees and other expenses. The transfer to reserve and surplus share paid to Government are also included under outgo. The comparison of real work-up results with the expected in 1999-200 and 2004-2005 has revealed the outstanding performance of LIC.

The excess of income over outgo has been Rs. 4,929.13 crores in 1990-91 and Rs. 14,979.90 crore in 1996-97 which are expected to go upto Rs. 30,000 crore in 2004-2005. From the total funds every year, claims amount are also deducted.

The total fund at the end of 1996-97 was Rs. 87,759.96 crore which is expected to go upto Rs. 1,75,000 crore in 2004-2005. The corporation has to accumulate that amount by 2005 for investment. The LIC investment is made in social and economic projects.

Expense Ratio: Overall expense ratio has gone down from 23.24% of total premium income in 1990-91 to 21.43% in 1996-97 and expected to go down to 20.00% in 2000. Renewal ratio is increasing from 3.52% in 1990-91 to 7.00% in 1996-97 and expected to go upto 10.0% in 2005.

It reveals that LIC is unable to restrain renewal rates, while some improvements are expected in overall expense ratio. But real experience showed at LIC has curtailed its expanses.

Rate of Interest Realised:

The rate of interest increased from 11.44% in 1990-91 to 12.39% in 1996-97 and expected to go upto 13.5% in 2004-2005. It reveals that LIC is able to earn more interest. The rate in 2004-2005 is outcome or market positive.

Ratio of Outstanding Claims: The percentage of outstanding claims to claims payable has been rounding from the lowest 4.86% to 5.99%. It is expected to be at 5.00% in 2000 and 4.50% in 2005.

Thus the outstanding claims have not been improved and could not go down to 4.00 per cent. It has improved to the label of 6.80 per cent on 2004-2005,

Investment Operations :

The total Investment has increased from Rs. 24,899.65 crore in 1990-91 to Rs. 77,935.19 crore in 1996- 97 and is expected to go upto Rs. 1,25,000.00 crore in 2005. It shows that LIC has taken serious step for socio-economic development of the country.

The investment has gone to 84.58 percent in 1996-97 in Public Sector, whereas investment in private sector has declined from 14.00% to 12.93% in 1990-91 and 1996-97 respectively.

It reveals that investment in public sector is given more importance. Public Sector enterprises are engaged in socio-economic development of India. Many infrastructure development projects have been taken up by public sector. The investment in private sector is expected to increase as a result of private insurers.

The trend of investment would reverse in next century i.e., private investment would increase as compared to investment in public sector. The real investment has increased to Rs. 4,13,800.00 crores in 2004-2005 as against the expected investment of Rs. 115.00. It reveals that the LIC profound excellently.

Productivity of Agents :

Productivity of agents is calculated dividing total new business (individuals) by number of active agents. The average business per agent has increased from Rs. 6,78,344 in 1990-91 to Rs. 10,84,284 in 1996-97 and is expected to touch Rs. 15,00,000 in 2005 as the number of active agents is expected to go lip to 7,00,000.

The technological improvements will enhance their productivity. It is, therefore, more than the expected new businesses.

The agents’ productivity is expected to increase in coming years. The productively of insurance agent has been Rs. 16,97,997 as compared to expected Rs. 15,00,000 in 2004-2005. It discloses the increased producing by of LIC. Business is expected to increase in future.

Social Responsibilities :

The social responsibilities have been analysed under investment in social schemes, new lives insured under social security group schemes and loans to housing schemes.

Socially Oriented Investment: The socially oriented investment has increased from Rs. 2,705.78 crore in 1990-91 to Rs. 11,794.95 crore in 1996-97 and is expected to increase to Rs. 30,000 crore by 2005.

These investments help to improve the quality of life of the people at large through improvement of basic amenities like potable water, drainage, housing, electrification and transport. In 2004-2005, it has been more than expected.

New Lives Insured under Social Security Group Schemes: New lives insured under social security group schemes has increased from 4, 21,113 in 1990-91 to 9, 91,327 in 1996-97 and expected to go up 28, 00,000 by 2005. LIC made considerable efforts for creating greater awareness and benefits provided under Landless Agricultural Laborers (LALG-1) and IRDP Group Insurance Scheme.

The accidental death cover has been increased and Disability benefits have been included under Social Security Group Insurance with effect from 16th-October, 1995.

In case of death or total permanent disability due to accident (including loss of two limbs of use) an amount of Rs. 25.00 is payable and in case of loss of limb of use, due to an accident, a sum of Rs. 12,500 is payable under these schemes irrespective of basic sum assured.

These additional benefits have been provided from Social Security Fund without charging any additional premium. The performances of LIC in 2004-2005 have been for table than expected.