Prepared to deliver lecture in class of M.Com

1. Life Insurance Corporation
&
General Insurance Corporation
Dr. Jamaluddeen (Jamal), Assistant Professor,
Department of Commerce, University of North Bengal

2. Insurance Companies: LIC and GIC
Objectives
Roles
Investment Practices

3. Insurance
Contract
InsuredInsurer
Pays Claim on happening Contingency
Pays Premium

4. The definition of insurance can be made from two
points:
Functional definition
Contractual definition
FUNCTIONAL DEFINITION
Insurance is a co-operative device to spread the
loss caused by a particular risk over a number of
persons who are exposed to it and who agree to
insure themselves against the risk.

5.  It is a co-operative device
 It spreads the risk over a large number of
persons who are insured against the risk
 It provides security to the insured

6. In the words of justice
Tindall
Insurance is a contract in
which a sum of money is
paid to the assured as
consideration of insurer’s
incurring the risk of
paying a large sum upon
a given contingency.

7.  It is contract
 Where by insurer assumes the risk of insured
 And promises to pay a specified amount
 On the happening of a specific event
 In consideration of the premium paid by the insured

8.  Sharing risk
 Co-operative device
 Value of risk
 Payment of contingency
 Amount of payment
 Large number of insured
 Not gambling or charity

9.  Protection to the exposed risk
 Protection against uncertainty or possibility
 Reduce the impact of the risk
 Only economic consequences can be insured

10.  Life insurance companies sell life insurance, annuities
and pensions products.
 Non-life/property/casualty insurance Companies, sell
other types of insurance (fire, marine, health)
 Reinsurance/Insurance for Insurers/Stop Loss
Insurance Companies transfer portions of risk
portfolios to other parties by some form of agreement
to reduce the likelihood of paying a large obligation
resulting from an insurance claim.
 Captive Insurance Companieswholly owned and
controlled by its insured; its primary purpose is to
insure the risks of its owners

11.  Basic Principles
 Principle of co-operation
 Principle of probability
 Legal Principles
 Principle of Uberrimae Fidei (Utmost good faith)
 Principle of Insurable interest
 Principle of Indemnity
 Principle of Causa Proxima
 Principle of Subrogation
 Principle of Contribution

12. HISTORY OF INSURNACE IN INDIA
Phase Period Industry
Phase-1
a. Life Insurance
b. General Insurance
1818 to 1956
(about 138 yrs)
1850 to 1972
(about 122 yrs)
Many (245) private sector companies only,
competitive market
Many (107) private sector companies only,
competitive market
Phase-II
a. Life Insurance
b. General Insurance
1956 to 2000
(about 44 yrs)
1972 to 2000
(about 28 yrs)
Nationalization, public sector or state
monopoly, only one company
Nationalization, public sector or state
monopoly, only one company with its four
subsidiary
Phase-III
Life Insurance
and
General Insurance
After 2000
Opened to the entry of private domestic and
foreign companies, mixed sector of public
and private sector unit, oligopoly of public
sector companies.

13. - 1818 First life insurance company Oriental Life Insurance
Company (in Calcutta).
- 1850 First general insurance company “Tritan Insurance
Company (in Calcutta)
- Till 1956/1972 life and general insurance industry grown
in terms of number of companies (life 245 and General 107
with complete private sector ownership), the volume of
premium, investible resources, and so on.
- The insurance was regulated through the Insurance Act,
1938.
- The picture changed after the Independence.

14. - In 1956, 245 Indian and Foreign life insurers and provident
societies were nationalized, and new single entity namely
“LIC” was established by passing the LIC Act, 1956.
- Similarly, in 1972, 107 general insurers were nationalized
through the passing of General Insurance Business
(Nationalization) Act, 1972.
- The existing 107 insurers were amalgamated and grouped
into Five companies, viz., National Insurance Company
(NIC), New India Assurance Company (NIAC), Oriental
Insurance Company (OIC), United India Insurance
Company (UIIC), and General Insurance Corporation (GIC).
- Then insurance industry transformed into monopoly and
Oligopolistic state/public sector insurance industry in India.

16. Life insurance is a written
contract between the
insured and the insurer,
that provides for the
payment of the insured
sum on the date of the
maturity of the contract or
on the unfortunate death of
the insured, whichever
occurs earlier.

17. General insurance or non-life
insurance policies, including
automobile and homeowners
policies, provide payments
depending on the loss from a
particular financial event.
General insurance typically
comprises any insurance that
is not determined to be life
insurance.

18. LIC was formed in September 1956 by an Act of Parliament,
LIC Act 1956 with a contribution of Rs. 50 million.
The then Finance Minister Mr. C. D. Deshmukh while
piloting the bill for nationalization outlined the objectives
of LIC thus:
“To conduct the business with utmost economy with the spirit of
trusteeship; to charge premium no higher than warranted by strict
actuarial considerations; to invest the funds for obtaining
maximum yield for the policy holders consistent with safety of
capital; to render prompt and efficient service to policy holders
thereby making Insurance widely popular”.

19.  Life Insurance Corporation of India is an
Indian state-owned insurance group
 An investment company headquartered
in Mumbai
 Largest insurance company in India
 The Parliament of India passed the Life Insurance
of India Act on 19 January 1956 creating the Life
Insurance Corporation of India, which started
operation on 1st September of that year after
nationalizing the private insurance industry in
India

20.  Over 245 insurance companies and provident
societies were merged to create the state owned
Life Insurance Corporation
 This consisted
 154 life insurance companies,
 75 provident companies
 16 foreign companies and
 The Industrial Policy Resolution of 1956, which
had created a policy framework for extending
state control over at least 17 sectors of the
economy, including life insurance.

21.  Spread Life Insurance widely and in particular to
the rural areas and to the socially and
economically backward classes
 Maximize mobilization of people's savings by
making insurance-linked savings adequately
attractive
 Develop the confidence among policyholders that
national priorities and obligations of attractive
return are followed
 Conduct business with utmost economy and with
the full realization that the moneys belong to the
policyholders

22.  Act as trustees of the insured public in their
individual and collective capacities
 Meet the various life insurance needs of the
community that would arise in the changing
social and economic environment
 Involve all people working in the Corporation
to in furthering the interests of the insured
public
 Promote amongst all agents and employees a
sense of participation, pride and job satisfaction
through discharge of their duties

23. The Corporation is a body corporate
having perpetual succession with a
common seal with powers to acquire,
hold and dispose of property and may by
its name sue and be sued. The functions of
the Corporation shall be to carry on and
develop life insurance business to the best
advantage of community

24.  To carry on capital redemption business,
annuity certain business or reinsurance
business in so far as such reinsurance business
relating to life insurance business;
 To invest the funds of the Corporation in such
manner as the Corporation may think fit and to
take all such steps as may be necessary
 Taking over of and administering any property
offered as security for the investment until a
suitable opportunity arises for its disposal

25.  To acquire, hold and dispose of any property for the
purpose of its business
 To transfer the life insurance business carried on
outside India to any other person or persons
 To advance or lend money upon the security of any
movable or immovable property
 To borrow or raise money in such manner and upon
such security as the Corporation may think fit
 To carry on itself or through any subsidiary any
other business in any case where such other business
was being carried on by a subsidiary

26. LIC has vast resources at its disposal for
investment. It mobilizes savings of the masses
and invests the same in different type of securities
and as loans and advances. The premiums
received form the policy holders are the principle
source of funds of LIC. Besides it, LIC receives
interest, dividends repayments and redemptions
which add upto its investible resources.

27.  Over 107 Indian & Foreign insurance companies were
operating in country prior to Nationalization of GIC.
 These insurance companies were grouped into four
operating companies; namely;
 National Insurance Company Ltd.
 New India Assurance Company Ltd.
 Oriental Insurance Company Ltd.
 United India Insurance Company Ltd.
 These companies were performing all types of
insurance business except air travel insurance & crop
Insurance
 Main business is related with the insurance of
marine, fire, motor etc.

28.  General Insurance Corporation of India was
formed by the Central Government in November
22, 1972 with effect from January 1, 1973
 GIC has been re-designed as the ‘Indian
Reinsurance’ business in 2000.
 GIC is steadily increasing its presence in foreign
countries
 In pursuance of the General Insurance
(Nationalisation) Amendment Act, 2002 its
erstwhile subsidiaries have been de-linked w.e.f
May, 2003

29.  To carry on the general insurance business
other than life, such as accident, fire, etc.
 To aid and achieve the subsidiaries to conduct
the insurance business
 To help the conduct of investment strategies of
the subsidiaries in an efficient and productive
manner
 to provide IT solutions solving business
challenges
 To empower of its employees.

30.  Carrying on of any part of the general insurance, if
it thinks it is desirable to do so.
 Aiding, assisting and advising the acquiring
companies in the matter of setting up standards
 Rendering efficient services to policyholders
 Advising the matter of investing fund.
 Issuing directives to the acquiring companies in
relation to the conduct of business.
 Issuing directions and encouraging competition in
order to render their services more efficiently.

31.  Some of the schemes for the benefit of poor
 Personal account insurance,
 Social security scheme,
 Hut insurance scheme for poor
 Crop insurance
 GIC is presently operating in 16 countries directly
through branches or agencies
 GIC is operating in 14 countries through subsidiary
and associate companies
 The wholly owned subsidiary of GIC (Indian
International Insurance Private Limited), set up in
1988 in Singapore, has grown into a leading
company in the Singapore market.

32. GIC has issued various types of policies to suit
the diverse needs of the people. The income
received in the form of premium is invested in
various types of securities as well as in the
form of advancing loans. GIC is operating as
an important investment institution in the
capital market in India.

33.  Razing of funds
 Premium of Policy (main source)
 Interest on lending
 Dividends on Investment
 For investment following principle is
followed-
 Liquidity
 Safety
 Return

34. Performance of Insurance Business

35.  It is a market situation in which one party in a
transaction has insufficient information about
other party which leads to market failure
 It deals with the study of decisions in
transactions where one party has more or
better information than the other
 This asymmetry creates an imbalance of power
in transactions, which may cause the
transactions to go awry; like
 Adverse Selection,
 Moral Hazard, and
 Monopolies of Knowledge

36.  Adverse Selection : Adverse selection refers to
a situation where sellers have information that
buyers do not, or vice versa, about some aspect
of product quality
 Moral Hazards: Someone increases their
exposure to risk when insured, especially when
a person takes more risks because someone else
bears the cost of those risks
 Monopoly of Knowledge : It arises when the
one class of people maintains political power
through control of key communications
technologies

37.  Signals of long-term business
 Give warranties
 Employ a mechanic to test
 No claims bonuses
 Limiting coverage
 Raising premiums

38. IF ANY QUERIES

39. ThankYou
Dr. jAMALUDDEEN
Assistant Professor
Department of Commerce
North Bengal University
Contact No. 07499615156
E-mail: qjamaluddeen@gmail.com