Life Insurance Corporation of India: Future Prospects
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Case Code: BSTR110 Case Length: 26 Pages Period: 1992 - 2002 Pub Date: 2002 Teaching Note: Not Available |
Price: Rs.500 Organization: Life Insurance Corporation of India Industry: Insurance Countries : India Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Subsidiary Companies
In the late 1980s, LIC established a few subsidiaries with a view to expanding its services. These were LIC Housing Finance Limited, LIC Mutual Fund, Life Insurance Corporation (International) E.C. and LIC (Nepal).
LIC Housing Finance Limited:
LIC Housing Finance Limited (LICHFL) was started in June 1989, to provide long-term finance for purchase/construction of houses/flats, particularly to policyholders of LIC. During the 1990s, the subsidiary grew into a premium housing finance company, disbursing over Rs 50 billion of loans. Its loan delivery system was the largest in the country...
The Post-Liberalisation Years
The Indian government's decision to privatize the insurance industry broke the monopoly of LIC. With the advent of competition, LIC was forced to change its organizational outlook and its business processes. In January 2000, it adopted a three-pronged business strategy for business, which involved reduction in premiums, higher returns and introduction of new products. International consultants Booze Allen & Hamilton were hired in 2000, to advise LIC on the changes needed in the organization. In 2001, LIC tied up with two payment gateways - Billjunction.com and Timesofmoney.com to set up a facility for policyholders to pay premiums through the Internet. It also tied up with ICICI Bank, HDFC Bank, UTI Bank and Bank of Punjab to directly remit customers' policy premiums and debit their accounts after the transaction...
Products and Pricing
Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. A large number of people form an association that shares the risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death, accidents and burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved. Thus, insurance is the collective bearing of risk. The insurance business is broadly divided into two broad categories across the world - life insurance and general insurance...
Technology
In the late 1950s, LIC began using Unit Record Machines (electro mechanical machines) to process data punched into cards. Computers were introduced for the processing of data in 1964. By the 1980s, the Unit Record Machines were phased out and computers based on microprocessors were introduced for back-office computerisation. During the 1990s, the software and hardware infrastructure at the company was standardized. There was a tremendous increase in the use of technology by LIC during the late 1990s. The company launched its website, www.licindia.com, in mid-1995, to offer policyholders basic services such as modifying policies (change of address, change of nominee) and querying the status of the policy...
Marketing
Until the Indian insurance industry was liberalized, LIC did not have any clear marketing strategies. Since it enjoyed monopoly status, it could afford to have a very limited focus on marketing. For the average Indian, LIC became synonymous with life insurance, and over the years it built up an enviable brand image in both rural and urban areas. The company grew by leaps and bounds, with people buying its policies due to the tax concessions attached to it. On account of its position as a monopoly, LIC did not standardize its practices nor did it focused on providing better customer service to the policyholders...
Distribution
LIC had a large network of 8 lakh agents for distributing its products. The company had several marketing personnel designated as 'Development Officers' in each branch. These development officers, in turn, employed and trained a number of agents, and received incentives for the business generated by these agents, in addition to their regular salaries. However, this network was not very cost-effective as LIC had to pay bonuses and commissions twice - to the agents as well as the development officers - for every new policy and every subsequent renewal. Despite the efforts of the development officers, the retention of agents had become difficult...
Customer Service
In order to be able to serve its customers better, LIC had an well-organized grievance redressal system. The grievance redressal system consisted of Grievance Redressal Officers, complaint cells, a claims review committee, policyholders' councils, an advisory board, a consumers' affairs committee and a citizens' charter.
Grievance Redressal Officers:
Grievance redressal officers were designated by LIC at all levels of the organization. The following persons acted in the capacity of grievance redressal officers:...
Human Resources
LIC has had many problems relating to the efficient use of its human resources since the time it was set up. Many of these problems related to the fact that it was a public sector organization. The corporation's managers were too bureaucratic. The work culture in the organization was sloppy. Strong trade unions made it difficult for managers to get the work done. The corporation's development officers focused on their own earnings and incentives, rather than on customer satisfaction...
Future Outlook
LIC planned to enter into more alliances with banks and with leading educational institutes for training. It would also increase offshore activities and set up an exclusive technology company for sourcing software. Other priorities were the setting up of special cells and single-window facilitation centers for high-end customers, rapid introduction of innovative policies, and a renewed thrust on mass and group business. The corporation also decided to offer value-added services to high-end customers, besides special services. At a later stage, it planned to have separate dedicated branches for high-end policyholders. The decision to have its own separate IT set-up was driven by the requirement of software for the sprawling network of LIC's branches and other offices...
Indian Life Insurance Industry
Until the early 21st century, the Indian life insurance industry was completely in the hands of LIC. In the 1950s, the industry had been nationalized in order to increase the penetration of insurance in the country and to make it available to less privileged segments of society. But even after 40 years of nationalization, only 25% of the insurable population was covered under insurance. This was one of major reasons for opening up the sector -- to allow private players to work towards extending the reach and coverage of insurance all over the country...
Exhibits
Exhibit I: LIC - Product Portfolio
Exhibit II: LIC - Working Results
Exhibit III: LIC - Claims Settlement
Exhibit IV: Employee Rationalization
Exhibit V: About IRDA
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