Life Insurance Corporation's Future Prospects

"I don't think service can be a plank. What the customer is bothered about is the returns he gets at the end of 20 years, and our returns are very good."

- G.N Bajpai, Chairman, LIC in 2000.

LIC under Siege

Ravi Bhargava (Bhargava), Assistant Marketing Manager, Life Insurance Corporation of India (LIC) was disconcerted by the full-page advertisement in the newspaper. The advertisement, by an Indian company in alliance with a US insurance company declared, 'Till now we were all buying insurance blindfolded, wake up. Experience the new phenomenon, one giving shape to all your dreams and driving away all your fears.' On the next page was another advertisement by an Indian bank, inviting applications from agency managers, promising a very good work atmosphere and 'best in the industry' remuneration. Bhargava had been Marketing Manager at LIC for the past eighteen months and eight of his best performing agents had submitted their resignations. He feared more would follow suit. The new players in the life insurance market were already affecting LIC. The Monitor Group, a Boston-based strategy consulting firm, which studied the trends in the Indian insurance market after it was thrown open to private players, predicted that LIC would find the going tough.

But Prakash Sharma, (GM, Marketing Division) was more optimistic: "It is obvious they will look for the best of our people, but we are not unduly worried. LIC offers a commission of 35% of the premiums for the first year and 7.5% for the next two years, and 5% for the rest of the period for which the sum is assured. At the most, the new players will be able to offer 40% - not good enough to attract our people. These are all new players and none can beat our 44 years of experience." But Bhargava and Sharma knew that the issues involved were not that simple.

Background Note

In 1956, there were 154 Indian insurers, 16 foreign insurers and 75 provident societies in the life insurance¹ sector in the country. The life insurance business was concentrated in urban areas and served only the wealthy sections. In January 1956, the management of the 245 Indian and foreign insurers and provident societies was taken over by the Central Government.

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1] 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 death of the insured, whichever occurs earlier.