LIC ADO Interview Preparation Guide
C. Brief History Of Insurance :
- Insurance has been a part of human history for
thousands of years, with the instinct to secure against loss and disaster
existing since ancient times.
- Modern life insurance was introduced to India from
England in 1818 with the establishment of the Oriental Life Insurance Company
in Calcutta.
- Initially, insurance companies in India catered
primarily to the needs of the European community, and Indian natives were not
insured by these companies.
- The first Indian life insurance company, Bombay
Mutual Life Assurance Society, was established in 1870, marking a shift towards
insuring Indian lives at normal rates.
- The Swadeshi movement of 1905-1907 led to the
establishment of more insurance companies, aiming to promote nationalism and
social security.
- The Life Insurance Companies Act and the Provident
Fund Act were passed in 1912, which provided legislation to regulate insurance
business in India.
- The Insurance Act of 1938 was the first
comprehensive legislation to govern both life and non-life insurance,
introducing strict state control over the insurance industry.
- Life insurance in India was nationalized on January
19, 1956, with the creation of the Life Insurance Corporation of India (LIC)
through the Life Insurance Corporation Act.
- LIC was established with the objective of spreading
life insurance widely, especially in rural areas, to provide financial cover at
a reasonable cost.
- Over the years, LIC expanded its operations by
opening branch offices in each district headquarters, leading to significant
growth in its business performance.
- Presently, LIC operates with computerized branch
offices, divisional offices, and zonal offices, along with satellite offices to
provide easy access to policyholders.
- LIC remains the dominant life insurer in India,
continually surpassing its own performance records and issuing millions of
policies each year.
1. Some of the important
milestones in the life insurance business in India are :
1818 : Oriental Life Insurance Company, the first life
insurance company on Indian soil started functioning.
1870 : Bombay Mutual Life Assurance Society, the first
Indian life insurance company started its business.
1912 : The Indian Life Assurance Companies Act enacted
as the first statute to regulate the life insurance business.
1928 : The Indian Insurance Companies Act enacted to
enable the government to collect statistical information about both life and
non-life insurance businesses.
1938 : Earlier legislation consolidated and amended to
by the Insurance Act with the objective of protecting the interests of the
insuring public.
1956 : 245 Indian and foreign insurers and provident
societies are taken over by the central government and nationalised. LIC formed
by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.
5 crore from the Government of India.
The General insurance business in India, on the other
hand, can trace its roots to the Triton Insurance Company Ltd., the first
general insurance company established in the year 1850 in Calcutta by the
British.
2. Some of the important
milestones in the general insurance business in India are :
1907 : The Indian Mercantile Insurance Ltd. set up,
the first company to transact all classes of general insurance business.
1957 : General Insurance Council, a wing of the
Insurance Association of India, frames a code of conduct for ensuring fair
conduct and sound business practices.
1968 : The Insurance Act amended to regulate
investments and set minimum solvency margins and the Tariff Advisory Committee
set up.
1972 : The General Insurance Business
(Nationalisation) Act, 1972 nationalised the general insurance business in
India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four
companies viz. the National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd. and the United India
Insurance Company Ltd. GIC incorporated as a company.
D. About Life Insurance Corporation of India (LIC) :
Life Insurance Corporation of India (LIC) is an Indian
public sector life insurance company headquartered in Mumbai. It is India's
largest insurance company as well as the largest institutional investor with
total assets under management worth ₹41 trillion (US$510 billion) as of May
2022.It is under the ownership of Government of India and administrative
control of the Ministry of Finance. The Life Insurance Corporation of India was
established on 1 September 1956, when the Parliament of India passed the Life
Insurance of India Act, nationalizing the insurance industry in India. Over 245
insurance companies and provident societies were merged together. LIC reported
290 million policyholders as of 2019, a total life fund of ₹28.3 trillion, and
a total value of sold policies in the year 2018–19 of ₹21.4 million. The
company also reported having settled 26 million claims in 2018–19. It ranked
98th on the 2022 Fortune Global 500 list with a revenue of ₹775,283 crore
(US$97 billion) and a profit of ₹4,415 crore (US$550 million).
1. History :
A. Founding Organizations :
In 1818, Bipin Das Gupta established the Oriental Life
Insurance Company in Kolkata, making it the first company in India to offer
life insurance coverage. Its primary focus was the Indian market. Around the
same time, Surendranath Tagore founded the Hindustan Insurance Society, which
later became the Life Insurance Corporation (LIC). In 1870, the Bombay Mutual
Life Assurance Society was formed, becoming the first indigenous insurance
provider in Western India. Other insurance companies established before
independence include Postal Life Insurance (PLI) in 1884, Bharat Insurance
Company in 1896, United India in 1906, National Indian in 1906, National
Insurance in 1906, Co-operative Assurance in 1906, Hindustan Co-operatives in
1906, The New India Assurance Co Ltd in 1919, Indian Mercantile, General
Assurance, Swadeshi Life (later Bombay Life), and Sahyadri Insurance (merged
into LIC in 1986). These companies faced challenges due to turbulent economic
and political conditions in India, including the Indian rebellion of 1857,
World War I, and World War II. These events resulted in a high rate of liquidation
for life insurance companies in India and eroded public trust in the value of
life insurance.
B. Nationalization in 1956 :
In 1956, Feroze Gandhi, a parliamentarian, raised
concerns about insurance fraud involving private insurance agencies. Subsequent
investigations led to the imprisonment of Sachin Devkekar, one of India's
wealthiest businessmen and owner of the Times of India, for two years.
C. Initial Public Offering :
In the 2021 Union Budget, Finance Minister Nirmala
Sitharaman proposed conducting an initial public offering (IPO) for LIC. The
IPO is expected to take place in 2022, with the Government of India remaining
the majority shareholder after the public listing. Ten percent of shares are
planned to be allocated to existing LIC policyholders. In 2021, the government
proposed to increase LIC's authorized capital to ₹250 billion (US$3.1 billion)
to facilitate the IPO scheduled for the next fiscal year starting on April 1.
Due to the magnitude of the offering and LIC's ownership structure, the deal
has been compared to "India's Aramco moment," referring to the 2019
IPO of Saudi Aramco. On May 4, 2022, LIC announced the opening of its IPO to
the public, with the process concluding on May 9. Through this IPO, the
Government of India aims to raise ₹21,000 crore. The IPO price band for a 3.5%
stake amounts to ₹21,000 crore, resulting in a valuation of approximately ₹6
lakh crore.
D. Structure :
LIC's Central Office is located in Mumbai, with a
total of eight zonal offices in Delhi, Chennai, Mumbai, Hyderabad, Kanpur,
Kolkata, Bhopal, and Patna.
E. Liberalization Post-2000s
:
In August 2000, the Indian Government initiated a
program to liberalize the insurance sector and opened it to private companies.
LIC benefited from this process and, in 2013, reported a compound annual growth
rate (CAGR) of 24.53% for first-year premiums and 19.28% for total life
premiums, surpassing the growth of the life insurance industry and
outperforming overall economic growth.
F. Golden Jubilee Foundation
:
Established in 2006 as a charitable organization, the
LIC Golden Jubilee Foundation aims to promote education, alleviate poverty, and
improve living conditions for the underprivileged. One well-known initiative of
the foundation is the Golden Jubilee Scholarship award, which is granted to
meritorious students in the 12th standard who wish to continue their studies
and have a parental income of less than ₹200,000 (US$2,500).
G. Holdings :
LIC invests in various sectors, including banks,
cement, chemicals and fertilizers, electricity and transmission, electrical and
electronics, engineering, construction and infrastructure, fast-moving consumer
goods, finance and investments, healthcare, hotels, information technology,
metals and mining, motor vehicles and ancillaries, oil and natural resources,
retail, textiles, transportation, and logistics.
H. Controversy :
Following the release of the critical Hindenburg
report against the Adani Group, LIC's holdings in seven major listed Adani
Group companies (excluding ACC Ltd and Ambuja Cements) decreased to ₹26,862
crore (US$3.23 billion) as of February 23, 2023, a decline of 11% from the
purchase value of ₹30,127 crore (US$3.62 billion). Hindenburg Research accused
the Adani Group of money laundering and stock manipulation, leading to a more
than 60% drop in the Adani Group's market capitalization.
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| Source : Wikipedia |
2. Objectives of LIC :
- Spread Life Insurance widely and in particular to
the rural areas and to the socially and economically backward classes with a
view to reaching all insurable persons in the country and providing them
adequate financial cover against death at a reasonable cost.
- Maximize mobilization of people's savings by making
insurance-linked savings adequately attractive.
- Bear in mind, in the investment of funds, the
primary obligation to its policyholders, whose money it holds in trust, without
losing sight of the interest of the community as a whole; the funds to be
deployed to the best advantage of the investors as well as the community as a
whole, keeping in view national priorities and obligations of attractive
return.
- Conduct business with utmost economy and with the
full realization that the moneys belong to the policyholders.
- 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 the
best of their capability in furthering the interests of the insured public by
providing efficient service with courtesy.
- Promote amongst all agents and employees of the
Corporation a sense of participation, pride and job satisfaction through
discharge of their duties with dedication towards achievement of Corporate
Objective.
3. Mission and Vision of LIC
:
Mission :
"Ensure and enhance the quality of life of people
through financial security by providing products and services of aspired
attributes with competitive returns, and by rendering resources for economic
development."
Vision :
"A trans-nationally competitive financial
conglomerate of significance to societies and Pride of India."
6. Life Insurance :
Life insurance has been a part of India for more than
a century, considering the country's large population. However, the
understanding and awareness of insurance in our nation are not as widespread as
they should be. In an effort to provide some insights into the concepts of life
insurance, particularly related to LIC, the following information is shared. It
is important to note that this content does not provide an exhaustive
description of the terms, conditions, benefits, or privileges of an LIC policy.
For more comprehensive details, we encourage you to get in touch with our
branch or divisional office. Our dedicated LIC agents are available to assist
you in selecting a life insurance plan that suits your specific requirements
and provide policy servicing.
>> What Is Life
Insurance?
Life insurance is a contract that pledges payment of
an amount to the person assured (or his nominee) on the happening of the event
insured against.
The contract is valid for payment of the insured
amount during :
- The date of maturity, or
- Specified dates at periodic intervals, or
- Unfortunate death, if it occurs earlier.
Among other things, the contract also provides for the
payment of premium periodically to the Corporation by the policyholder. Life
insurance is universally acknowledged to be an institution, which eliminates
'risk', substituting certainty for uncertainty and comes to the timely aid of
the family in the unfortunate event of death of the breadwinner.
By and large, life insurance is civilisation's partial
solution to the problems caused by death. Life insurance, in short, is
concerned with two hazards that stand across the life-path of every person :
1.That of dying prematurely leaving a dependent family
to fend for itself.
2.That of living till old age without visible means of
support.
>> Life Insurance vs.
Other Savings :
- Insurance Contract :
A contract of insurance is based on the principle of
utmost good faith, known as uberrima fides. It requires the policyholder to
disclose all material facts, which applies to all types of insurance. When
obtaining a policy, it is important for the policyholder to ensure that all
questions in the proposal form are accurately answered. Any misrepresentation,
non-disclosure, or fraud in the documentation that leads to the acceptance of
the risk can invalidate the insurance contract.
- Protection :
Life insurance offers comprehensive protection against
the risk of death for the saver. In the event of the policyholder's demise,
life insurance guarantees the payment of the entire sum assured (including
bonuses, if applicable). On the other hand, in other savings schemes, only the
amount saved with interest is payable upon death.
- Aid to Thrift :
Life insurance promotes the habit of saving,
encouraging thriftiness. It facilitates long-term savings by providing an easy
installment facility for premium payments. Premiums for insurance can be paid
on a monthly, quarterly, half-yearly, or yearly basis. For instance, the Salary
Saving Scheme (SSS), also known as the popular SSS, offers a convenient method
of monthly premium payment through salary deduction. In this case, the employer
deducts the premium from the employee's salary and directly pays it to LIC. The
Salary Saving Scheme is suitable for institutions or establishments, subject to
specific terms and conditions.
- Liquidity :
Life insurance policies can provide easy access to
loans, using the policy as collateral. Additionally, a life insurance policy is
generally accepted as security for commercial loans.
- Tax Relief :
Life insurance offers opportunities for tax deductions
on income tax and wealth tax. Premiums paid for life insurance are eligible for
tax relief based on the prevailing income tax rates. Assessees can take advantage
of provisions in the law to reduce their premium payments.
- Money When You Need It :
A well-planned insurance policy or a combination of
different plans can effectively meet various financial needs that may arise
over time. These policies can help cover expenses such as children's education,
starting a new life or marriage, or fulfilling periodic cash requirements.
Policyholders can also access the policy funds upon retirement to purchase a
house or make other investments. Additionally, policyholders can obtain loans
for house construction or purchasing flats, subject to certain conditions.
- Who Can Buy A Policy ?
Any individual who has reached the age of majority and
is eligible to enter into a valid contract can insure themselves and those in
whom they have insurable interest. Policies can also be taken on the lives of spouses
or children, subject to specific conditions. The Corporation considers factors
such as the policyholder's health and income when underwriting proposals.
- Insurance For Women :
Prior to nationalization in 1956, private insurance
companies would often offer insurance to women with additional premiums or
under restrictive conditions. However, after the nationalization of life
insurance, the terms for granting life insurance to women have been revised.
Women who work and earn an income are treated on par with men, while for
others, restrictions may apply based on age and income tax liability.
- Medical And Non-Medical Schemes :
Life insurance is usually offered after a medical
examination of the insured individual. However, to promote wider coverage and
convenience, LIC provides insurance without a medical examination, subject to
certain conditions.
- With Profit And Without Profit Plans :
Insurance policies can be categorized as
"with" or "without" profit plans. In "with"
profit plans, bonuses are allocated to the policyholder based on periodic
valuations and are paid along with the sum assured. In "without"
profit plans, the contracted amount is paid without any additional bonuses. The
premium rate for "with" profit policies is higher than for
"without" profit policies.
- Keyman Insurance :
Keyman insurance is taken out by a business firm on
the life of a key employee(s) to safeguard the firm against financial losses that
may arise due to the premature death of the key employee.
7. Different Policies :
8. Board of Directors :
