LIC: INDIA’S MOST TRUSTED LIFE INSURANCE COMPANY

It has just been a few days since the country’s most trusted life insurance company has decided to go an initial public offering after the government decided to undertake disinvestment as far as LIC is concerned. What made the GoI take up disinvestment as a decision? Read on and you’ll know it soon!

What is IPO?

The process through which the shares of a private corporation are offered to the common public through new stock issues is known as IPO or Initial Public Offering. The common public thereafter buys the shares of the company, with the help of which, the company in question is able to raise its capital and scale new heights. 

What is life insurance: History of LIC:

For the unversed, an insurance company, in exchange for a premium, extends financial protection to individuals when the latter is faced with unfortunate events like death. The modern-day concept of life insurance was introduced in India by the British, back in the year 1818, when Oriental Life Insurance company was established in Calcutta (now, Kolkata) as India’s first-ever insurance company.

Picture credit: https://www.youtube.com/watch?v=nNwC9e6johU

However, things were not so easy going back then. Although the British did introduce the idea of insurance, Indians were provided with substandard insurance plans and unnecessarily hefty premiums. Seeing this and with an agenda to combat this problem, the Bombay Mutual Life Assurance Society first started Bhartiya Jeevan Bima Nigam in 1870, which offered insurance to Indians at normal premiums. By the year 1938, the total business of insurance companies overall amounted to INR 298 crores!

However, at that point in time life insurance was a concept that was limited to privatised companies and only well-off Indians could avail of its benefits. Post-1947, after India gained independence, the government of India made an expansion of the insurance policy so that life insurance and its benefits could be extended to almost every village if not all.

Owing to the lucrative business sector that insurance as a concept was housed in, countless insurance companies started cropping up and it wasn’t long before they started indulging in unfair means and ways to rake in revenue. To prevent this and to expand life insurance to rural areas, the government of India decided to nationalize the insurance business.

On 19^th January 1956, life insurance stood as a nationalized concept in this country. On 19^th June 1956, the Indian parliament passed the Life Insurance Corporation Act and on 1^st September 1956, the Life Insurance Corporation of India, i.e., LIC came into existence. LIC happened to be an amalgamation of 245 standalone insurance companies and was considered to be a giant, government-owned insurance organization, right from its inception.

Picture credit: https://www.youtube.com/watch?v=nNwC9e6johU

To facilitate ease of operations, LIC branches started opening up at all state and district levels and in no time, the business of this company scaled up from INR 200 crores to INR 7000 crores!

How did LIC become this successful?

A plethora of reasons can be attributed to the success of LIC, the most prominent of which is a large network of LIC agents. LIC agents work independently, sell insurance policies as per people’s needs and expand LIC’s network. LIC agents were also successful in reaching remote villages and settlements. 

Picture credit: https://www.youtube.com/watch?v=nNwC9e6johU

With extensive training being provided to LIC agents that aid them to transform into empathetic individuals, capable of resonating with their customer’s plight, LIC, in no time, created a very strong bond with its customers with a 98.62% claim record! Apart from this, LIC never shied away from integrating improvisation techniques in its operations. They even took immense care to design new policies always keeping in mind the feedback that they gathered from their customers.

Losses and challenges: Why did the government decide to disinvest?

LIC, as you might have already gathered from this piece, has had to work within the boundary of government rules and regulations, owing to which, its growth has been pretty stunted. LIC has had to invest quite a bit in loss-making firms, under the policies of the government. Because of this scenario, experts have always been of the firm opinion that LIC should be given autonomy to invest in profit-making sectors. Since the company was under the aegis of the government, it could not focus much on content creation and advertising its services, as compared to its privatized counterparts. In addition, the traditional approach of LIC agents was fast losing its charm when it was held up in comparison with the attractive, lucrative digitalized approach of the private insurance companies. Due to this, LIC failed to rake in the young urban youth who preferred going the digital way as far as insurance was concerned.

Conclusion:

Despite the aforesaid challenges and shortcomings, LIC has come out strong at the other end – the most important of its attributes being: its ability to harbor Indians’ trust. Most Indians still swear by LIC when it comes to life insurance and it is exactly this advantage, that LIC plans on leveraging in the near future as it takes on the insurance sector once again and proves its own worth!

--- Author Astha Singh