CHAPTER - I

INTRODUCTION AND DESIGN OF THE STUDY

1 Introduction

1.2 Statement of the problem

1.3 Review of Literature

1.4 Scope of the study

1.5 Objectives of the study

1.6 Limitations of the study

1.7 Operational Definition of Concepts

1.8 Methodology

1.9 Construction of Tools and Pretest

1.10 Sampling Design

1.11 Geographical Coverage

1.12 Period of the Study

1 .13 Field work and Collection of Data

1.14 Data Processing

1.15 Measurement of Variables and Framework of Analysis

1.16 Scheme of the Report

1.1 Introduction

Safety and security has become the prime concern of everybody. Eventhough

India has considerably developed economically, a section of the people still feels

unsafe and insecure. The growing number of accidents due to natural and unnatural

factors and ethnic issues sporadically erupting at different parts of the country

resulting in group clashes make them feel so. Hence, everything of this land has

become uncertain.

Uncertainty is the only certainty in life. Birth and death are certain and all

other intervening events are uncertain. In mundane life, wherever uncertainty exists,

there will be an involvement of risk also. The instinct and need for security against

such risk is a motivating force for human behaviour and action. In this sense, the

story of insurance is as old as the story of mankind'.

The concept of insurance must have been born as a quest for security. The

urge to provide insurance or protection against the loss of life must have prompted the

people to make some sort of sacrifice willingly in order to achieve security through

collective co-operation2.

Everybody wants to be safe and secure after attaining basic needs. Maslow, in

his theory of Hierarchy of Needs suggested that everybody tempts to attain social

needs as soon as he/she attains his/her basic physiological needs such as food,

clothing and shelter.

In the Indian society, the family is dependent upon the income of the

breadwinner. As long as he/she is good and alive, the family finds it good to have

good shelter, food, clothing and the like. But once when an untoward incident

happens in the life of the breadwinner, the family collapses. The family finds it

difficult to get rid of the pathetic situation. Similarly, when the breadwinner retires

from service, the regular income to the family ceases and that risk makes him/her to

think of an alternative whereby he/she and his/her family is protected from the

financial crisis. There comes insurance as the only substitute for this type of

uncertainty.

Life Insurance, in particular, provides protection to the dependants against the

risk of premature death of the income earning member. It also provides protection

against other life related risks such as longevity, the risk of disability and sickness.

The products provide for longevity are pensions and annuities and the product for the

risk of disability and sickness is health insurance.

Insurance not only serves the ends of individuals / groups of individuals but

also renovates modern social order by providing:

I. Security and Safety

Life insurance provides safety and security against the loss on a particular

event. The loss to the family at a premature death and payment in old age are

adequately provided by life insurance.

ii. Peace of Mind

The security wish is the prime motivating factor which tends to stimulate hard

work. The feeling of insecurity creates a tension which may manifest itself in the

form of an unpleasant reaction and frustration causing reduction in work. Insurance

eliminates insecurity and provides peace of mind.

iii. Economic Independence

Death of a breadwinner brings down the standard of living of the dependants

and their sufferings may go to the extent of begging from their relatives, neighbours

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or friends. The economic independence of the family is reduced or sometimes, lost

totally. Life Insurance protects the family in this regard.

iv. Compulsory Savings

The elements of protection and investment are simultaneously present only in

the case of life insurance. In property insurance, only protection element exists where

as in life insurance, element of savings predominates. The compulsion to pay

premium regularly in life insurance is so high, otherwise the policy will be lapsed. It

motivates the insured to remit the premium in time which indirectly becomes savings.

v. Profitable Investment

The element of investment and return of the capital along with certain

additional return are perfectly observed in life insurance. In India, the insurance

policies carry special exemption from Income Tax, Wealth Tax, Gift Tax and Estate

Duty. An individual on his own may not be able to invest regularly with enough

security and profitability. The life insurance fulfils all these requirements with a

lower cost.

vi. Needs of a Person

The needs of a person are divided into family needs, old age needs, re-

adjustment needs and special needs.

(a) Family Needs

Death of a breadwinner leaves the family only with sufferings and financial

stringencies. Any other provision, except life insurance, will not adequately meet the

financial requirements of the family.

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(b) Old age Needs

The provision for old age is required where the person is surviving more than

his earning period. If no other family member starts earning, they will be left with

nothing and if there is no property, it would be a more pitiable state of affairs. The

life insurance provides old age funds along with the protection of the family.

(c) Re-adjustment Needs

At the time of reduction in income whether on account of loss of employment,

disability or death, adjustment in the standard of living is required. Before coming

down to the lower standard, the family requires certain adjustment in income so that

the primary obstacles may be reduced to the minimum. The life insurance helps to

accumulate adequate funds for readjustment.

(d) Special Needs

There are certain special requirements of the family such as education of the

children, marriage of the daughter, settlement of children after education and the like.

These needs can be fulfilled with the help of special types of policies.

The bundling together of risk coverage and savings is the peculiarity of life

insurance

Life insurance is a contract in which the insurer, in consideration of a certain

premium, either in a lump - sum or by other periodical payments, agrees to pay to the

assured or to the person for whose benefit the policy is taken, the assured sum of

money on the happening of a specified event contingent on the human life or at the

expiry of certain period.

The concept of life insurance was brought to India from England. In the initial

years, British Insurance Companies used to issue policies on the lives of Indians by

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charging extra charges. Gradually, the nationalist and patriotic ideas spread over the

country led to the formation of Indian Life Insurance Companies. Prior to 1956, most

of the private life insurance companies miserably failed due to the ineffective

operations and mismanagement.

In order to give a solution to this serious problem, Shri. C. D. Deshmuk, the

then Finance Minister in the Government of Shri. Pandit Jawaharlal Nehru mooted the

Life Insurance (Emergency Provision) Ordinance 1956. He, while pursuing the Life

Insurance Bill 1956, in Loksabha, stated that in the post - nationalization period, it

would be possible to spread the message of insurance reaching out beyond the

advanced urban areas into the hither to neglected rural areas4.

The ordinance was promulgated on January 19, 1956, by the President of India

and the control of all the 245 Indian and Non-Indian Insurers was taken over by the

Government. The same was passed as an Act in the Parliament in the same year and

came in to force on July I, 1956. The Life Insurance Corporation (LIC) of India

began to function on September 1, 1956 with its Headquarters at Mumbai. It was

established with an initial capital of Rs.5 crores and managed by a board consisting of

15 members including a chairman. The LIC has opened many branches throughout

the country and even abroad to render manifold services. At present, the Corporation

has 7 Zonal Offices, 100 Divisional Offices and 2048 Branches all over the world.

Though the LIC is growing by leaps and bounds, the insurance coverage is low in

rural areas.

The avowed objectives of nationalization of life insurance business in India

were to develop it as a social security cover for all sections of the society and as an

important mechanism for channelising the savings of the people for national

development programmes.

Since its inception, the Life Insurance Corporation of India has been growing

tremendously. The new business transacted in its first year of business as on

December 31, 1957 which stood at Rs.336.37 crores went to Rs.1999698.31 crores

during the financial year 2003 —04. It had an investment of Rs.343 129 crores during

2003-04 as against Rs.381.90 crores in 1957. Life Fund of the Corporation has also

increased from Rs.410.40 crores in 1956-57 to Rs.337986.12 crores in 2003-04.

Likewise, the number of policies issued has increased from 9.42 lakhs in 1957 to 2.64

crores in 2003 - 04. Thus it has recorded a remarkable improvement in all respects.

The nationalization of life insurance business aimed at widening and

deepening all possible channels of public savings. In addition to the Whole Life Plans

and Endowment Plans, new plans are being introduced from time to time to meet the

demands of changing social and economic environments. New plans like Money

Back Plans, Jeevan Anand, Children's Deferred Endowment Plans like Kornai Jeevan

and Jeevan Kishore, Pension Plans like Jeevan Akshay II, New Jeevan Dhara and

New Jeevan Suraksha, Plans for Flandicapped Dependants like Jeevan Aadhar and

Jeevan Vishwas, Unit-linked Plans like Bima plus and Future plus, Social Security

Schemes like Janashree, Bima Yojana and Shiksha Sahayog Yojana, Double cover

policy like Jeevan Saathi, thrice the sum assured policy like Jeevan Mitra and the like

are offered to people in order to give options to their requirements.

Since nationalization but till 1999, life insurance business in India was

coterminous with the state owned LIC, which had a dominant position in the economy

in two ways. First, as a national insurance agency, it serves to pool and redistribute

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risks associated with the death of policyholders in millions of households. Secondly,

as a major collective savings institution, LIC is a dominant financial intermediary in

the economy, channelling investible funds to the productive sectors.

But, the Maihotra Committee (1994) was critical about the low insurance

coverage, unresponsiveness to customers' needs, poor service, costly insurance cover

with low returns and an excessive lapse ratio of policies. It stated that there was a

large untapped potential for insurance in the country and recommended for the

privatisation and liberalisation of the insurance sector 6 . Globalisation of service

sector also made it necessary to the Government to think about privatisation of life

insurance. Consequently, liberalisation took its course in the insurance sector in India

and 13 private insurance companies were allowed to do life insurance business in

India. Since then there has been competition in the insurance sector in India.

By constantly analysing the challenges and opportunities and also considering

its strengths and weaknesses, LIC has formed an action plan to take on the

competition and remain the numero uno of this industry. The action plan reads as,

• Concentrate on the bulk of rural life insurance business

• Devise attractive plans to suit the needs of the varied people at competitive

pricing and returns

• Inculcate insurance awareness in the minds of rural people.

• Set a target of zero outstanding claims.

• Constantly review the lapses and surrender of policies.

• Raise servicing standards and simplify procedures.

• Introduce info centre and interactive voice response system to boost customer

service and marketing.

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. Tie up with several banks to improve its reach.

. Focus on aggressive advertising.

Through innovative schemes, LIC and all the private insurance companies are

trying to tap the market potential in India. Eventhough, the competition in the sector

is rough and tough, the LIC of India still continues to be the predominant giant in life

insurance. In the present scenario, the Indian citizens who have either become policy

holders or yet to become policy holders are in dilemma as to which company and/or

which product is the best of all others. On many occasions they are being misled by

the agents.

1.2 Statement of the Problem

Ever since its inception in 1956, the Life Insurance Corporation of India has

been providing better service to the society which is highly insecure. The

policyholders once when they become a part of the LIC, feel free about the safety of

their wards. The families of the non - policyholders meet out uncertainty on the death

of the breadwinner. So there is an attraction towards life insurance. People who care

much about them and their families become policyholders of Life Insurance. The

tastes and preferences of policyholders are indifferent. The LIC of India has been

introducing variety of policies suiting the tastes and preferences of the policyholders.

In life insurance contracts, generally, the lumpsum assured is payable with

bonus either on the death of the policyholder or on the maturity of the policy, which

one happens earlier, whereas in other forms of savings, had the policyholder invested,

the investor would get only the amount saved with interest. Life Insurance facilitates

long term savings through easy instalments called premiums. Policy loans can be

taken on the surrender value of the policies for meeting urgent financial stringencies.

Interim Survival Benefits can be obtained if the policyholder prefers Money Back

Policies. Housing loans can be availed of from the Life Insurance Housing Finance

Limited (a sister concern of LIC providing housing loan) on the security of life

policies. There are schemes in LIC to bear the educational and marriage requirements

of the wards of policyholders. The LIC offers pension linked life insurance plans for

those who are desirous of keeping their savings to provide for their old age

requirements. Unit-linked plans are offered by the LIC for giving an opportunity for

the discerning investor to benefit from the returns available in the capital market

without going for direct investment in the capital market. Special policies are

available in LIC for handicapped children. Health insurance is also available in LIC

today. Tax assessees can avail of tax relief for amounts paid by way of premium for

life insurance subject to the income tax rules in force. In such cases, the assured, in

effect, pays a lower premium for his/her insurance than he/she would have to pay

otherwise. Like this, the utilisation of LIC is different from individual to individual.

In order to satisfy the varied tastes of the people, the Life Insurance

Corporation of India has been introducing a variety of innovative policies. Initially,

the LIC offered only two types of policies viz., Whole Life Policy and Endowment

Policy. Now it has a long list of more than 100 plans. Each policy caters to the needs

of different groups of people. In these competitive days, the LIC introduces new

products with very competitive pricing and returns compared to the offerings of the

private players. By this way, the LIC mops up the savings from the public for

providing the money for welfare schemes.

It is observed that many policyholders have taken more than one policy. It is a

clear indication that they are very much interested in utilizing maximum benefits from

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LIC. Some people give due importance to money value and high returns on their

investments. But greater risks are inherent in such investments. Risk coverage,

reasonable return and safety are the greatest advantages expected from LIC products.

One can continuously utilize the Corporation in various ways by becoming an

LIC policyholder. The extent of utilisation of LIC policies also differs from person to

person for the above said reasons. Extent of utilisation represents the value and the

number of LIC products purchased and thereby availing multifarious utilities and

services offered by the LIC.

The advent of private foreign insurance companies in India has become a

competition to the LIC of India. The policyholders once satisfied with the services of

the LIC of India started evaluating the services of the other private insurance

companies. Thus, the attitude of the policyholders towards the LIC of India has

started changing in the present days. There are murmurs at different corners as to the

services of the LIC of India.

Thus, it raises the following questions.

1. What are the benefits accruing to the policyholders from the LIC?

2. How far different policyholders have been utilizing different policies of the

LIC?

3. What is the extent of utilisation of the LIC by policyholders?

4. What are the factors, which determine the level of utilisation of the LIC by

policyholders?

5. What is the attitude of the policyholders towards the LIC?

6. What are the motivating factors responsible for becoming a policyholder?

7. What are the insurance products most desired by the policyholders?

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8. What are the problems faced with the agents of LIC in the utilisation by the

policyholders?

In this context, it is imperative to make a thorough study about the utilisation

of LIC by the policyholders. Hence, this study assumes importance.

1.3 Review of Literature

The researcher has referred to the previous studies made in the field of

insurance to focus on the extent of utilisation of the LIC by the policyholders. These

references helped the researcher to have a basic knowledge about life insurance.

Review of literature related to insurance is presented here.

/ Agarwala (1961), in his historical and analytical study entitled "The LIC in

India", pointed out that in the developing countries, life insurance was an expanding

phenomenon. Before the nationalization of the LIC, the life insurance market was

narrow and highly imperfect, which was due to the under development of the

country's national economy. But after nationalisation, the LIC has made an excellent

progress in the number of policies sold and the sum assured mobilized7.

Desai (1973), in his study entitled, "Life Insurance in India - its History and

Dimensions of Growth", opined that the origin and development of the life insurance

in India over the years has wide spread mindedness in insurance and the significant

sales through service initiatives, executive efficiency, economy and promptness and

spreading the benefits of life insurance to vast sections of the rural population and

industrial workers throughout the country could achieve a formidable growth in LIC8.

National Council of Applied Economic Research (1979) made a study on,

"Attiiudes Towards Life Insurance Cover". The study identified the extent of

awareness of LIC, reasons for opting or not opting for insurance, reasons for policy

12

lapses and the extent of interest in reviving the lapsed policies. The study presents the

profile of the policyholders in rural and urban India and their motivations and

attitudes towards life insurance. It is reported that over 75 per cent of the earners

were not aware of the life insurance cover. Savings for old age, education and

marriages of children together with providing a risk cover were the major factors that

prompted the insured earners to take a policy9.

,. Jeyaraman (1980), on the study with a title, "Development of Insurance

Business", outlined the methods for developing the life insurance business in rural

areas. He also suggested that organizational infrastructure in the rural areas need to

be enlarged so as to bag the growing insurance potential there'°

The study of Satpal Singh (1986) on the title, "Role of Life Insurance in

Economic Development of India", observed that the LIC had failed to compete with

other saving media in tapping the household savings. He also found in his study that

there was a vast scope for mobilisation of savings of household through life insurance.

He suggested that the life insurance protection should be extended to irregular income

earners too11.

Roy (1987) in his study on "Life Insurance Lightens the Hope of the People",

emphasised that the idea of insurance had gained momentum due to the growing and

increasing uncertainties of human lives in the society and also reported that the Rural

Career Agent Scheme and Jana Raksha Policy for the rural masses had made steady

progress in highlighting the idea of life insurance in rural areas12.

Williams (1988) conducted a study on "Challenge of Administering the

Insurance Business", which identified that the major problems in the insurance

industry include the need to limit the expenses within the allowed margins and the

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need to maximize returns He also observed that policies in medical insurance had

profit margins in good years and sizable losses in bad years13.

Singh, et.al ., (1988), in their research study entitled, "What the Professionals

Think about Life Insurance Corporation Policies?" viewed that there are motivational

factors behind the respondents to purchase an LIC policy along with other features.

They identified that the agents stood first followed by the respondents in purchasing

the LIC policies and except Charted Accountants who opted for tax benefits,

expressed the risk coverage as the rationale behind the purchase of the LIC policies.

The majority of the respondents were satisfied with the policies offered by the LIC14.

/The study entitled, "Appraisal of Marketing Strategies of the LIC of India",

made by Mishra (1988), analysed that the personal attitudes and expertise of the

management had influenced the business. The existing work force of the Corporation

was not properly utilized, trained and motivated. In the Indian situation, sex

composition was a significant factor to determine the market potential. Age, area of

residence (urban and rural) and occupational pattern of the population had influenced

the potential tapped in the life insurance market The LIC had not given much

weightage to the customer satisfaction' 5.

Thanulingom and Muthupandi (1989), in their study entitled, "Working of

Career Agency Scheme in LIC", highlighted the working of the career agency scheme

in the LIC of India. It is established that there was a positive correlation between the

performance of the LIC and the number of career agents. There was an increase both

in the number of policies sold and the sum assured with the increase in the number of

career agents. They also suggested that instead of spending much money on

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advertisement, it was advisable to recruit more number of career agents and give them

good training and motivation16.

Patel (1989), with a title, "An Aid to the Management", made a study and

suggested to keep the quality of the management information so that it can be decision

supportive as it has a dual role in management namely information for decision

making and information for control which influences future policy and therefore,

needs to have a futuristic character. He emphasised that in order to play effectively a

helping role, the managers in the LIC should equip themselves with better

understanding of systems, procedures and control17.

Mishra (1990), in his study entitled, "Successfully Managing Constraints -

Investment Analysis of the LIC", identified that the business of the LIC had increased

considerably on account of the marketing strategies adopted by the LIC. The

reorganisation of the LIC had also given impetus to its business. It was also reported

that the business of LIC had increased at a faster rate than that of the investment. The

market segmentation - age, sex, rural and urban and occupation—managerial or

executive type, regular income, self employed people, agriculture and allied labour

groups, ordinary and salary savings schemes and market penetration through agents

had also given fruitful results to the organisation18.

The study on "Life Assurance in South Africa", conducted by Ralph Roseman

(1990), highlighted that general climate for insurance in South Africa is unfavourable

mainly caused by inflation. Life Assurance products must compete with those of

other financial institutions and increased taxation will put the life insurance industry

at a disadvantage'9.

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Nagammai and Nair (1991), in their study entitled, "Investment Pattern of

Middle Income Group", ascertained that the most popular insurance product among

the middle income group was the Endowment Policy followed by the Money Back

Policy. They reasoned that the Endowment Policy had the combined benefits of

compulsory thrift, premature death benefit or retirement benefit. It is also helpful for

meeting heavy expenditure in wedding or higher education of one's children. Money

Back Scheme too had these benefits in addition to the survival benefit of refunding a

part of the sum assured in fixed intervals of time, but the premium payable is higher

than that of the Endowment Plan20.

The study of Joshi (1991) on "Life Insurance in India - A Rambling

Analysis", examined the progress of Life Insurance Corporation of India. He inferred

that despite the lower premium, the non-participating policies (without profits) were

not popular among the clientele. The growth in the number of policies sold grew

faster than that of the population growth. He also identified a growth of individual

assurance new business (number of policies and sum assured) and business in force.

Eventhough there were fluctuations in the percentage of rural business, the percentage

was higher in the later period than the earlier years of the study. According to his

study, 49 per cent of the new policies (sum assumed) was taken for tax relief, Money

Back and Endowment Policies sold being 90.59 percent, topped the list of sales

percentages21.

Mishra (1991), in his study entitled "Life Insurance Corporation of India - A

Study of Working and Performance", analysed the growth of the LIC. He identified

that the insurance business had increased mainly on account of the industrial

development. The Corporation had concentrated on rich people and depended on the

"[Si

existing policyholders for the expansion of its business. The rural business of the LIC

as a percentage to total business was declining. The LIC business had increased

mainly on account of the insurance policies taken by the salaried people. The

policyholders preferred those policies, which provide some payments during the

policy in force22.

Sharma (1995), in his book entitled, "Insurance", pointed out that the failure

of life insurance is very bright. He also suggested that depending upon the conditions,

its availability could be facilitated either through direct state intervention or by its

approach of encouragement, supervision and administration or through both the

practices 23.

Arora and Singh (1995), in their study entitled, "Growth and Performance of

LIC of India - A Study of Jalandhar Division", established that the LIC had made

manifold progress in terms of its business activities at national as well as divisional

levels. The individual business in force and the new business had shown positive

growth rate during the study period. However, the higher growth rate was observed in

the urban than the rural areas24.

Satpal Singh (1995), in his study entitled, "A Profile of Life Insurance

Industry in India with Special Reference to Mobilization of Savings", evaluated the

mobilisation of savings by the LIC with the dimensions of new business and premium

income along with other factors. He opined that the household sector savings in the

form of life insurance showed satisfactory growth in absolute terms during the thirty

seven years of nationalisation of the LIC of India25.

Rao (1997), in his study entitled, "Life Insurance Selling - A Case Study of

Drop-outs", analysed the dropouts in relation to age, education, experience and area

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of operation. He found that a large number of agents discontinued from their service.

Majority of them were in the first year of their agency, 82 per cent of the agents

discontinued were below thirty five years of age26.

The study of Singh (1999), on "Privatising Insurance - An Analysis",

appraised that despite the overall growth of insurance, several lines of business have

not been sufficiently developed and there was a vast untapped potential. Since

nationalisation, regulation of insurance industry has atrophied27.

(Selvam (1999) conducted a study entitled, "LIC Housing Finance - An

Evaluation", and identified that LICHFL has been established as a leading institution

in the field of housing finance. With the help of catered area and unit offices and

regional offices, LTCHFL has been providing housing finance to the individuals living

in remote areas of the country28.

Bhole (1999) made a study on "Financial Institutions and Markets", and

pointed out that the LIC has diversified its activities considerably in the recent past by

establishing LIC Housing Finance Limited (LICHFL), LIC Mutual Fund (LICMF),

Jeevan Bima Sahoyog Asset Management Limited (JBSAML) and LIC

International29.

The study of Rangachary (1999) on "Insurance - the Unfolding Scenario"

focused that the deregulation and the opening up of markets will increase competition,

cut costs and rationalize business activity. He also opined that the consumer would

benefit from lower insurance prices in the long run. The deregulation of insurance

will lead to a greater range of innovative and customer oriented products 30

Krishna Moorthy (1999), in his study entitled, "Life Insurance Corporation -

Bracing for Competition", highlighted that LIC has strived to infuse credibiflty in

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operations. Prompt and efficient claim settlement, being the ultimate service,

provides a high degree of customer satisfaction. Internet has offered new vistas in

marketing and the Corporation's presence on the internet has enhanced the sales and

marketing efforts. He also stressed that enunciation of the concept of three 'C's

namely, corporate identity, competition sensitivity and customer orientation and

introduction of modules on corporate identity has helped to harness the emotional

bonding with the organisation and strengthen the umbilical cord31.

Rama Krishnan (1999) made a study on "Insurance - Setting the Record

Straight", and observed that the LIC depends more on individuals than on industries

for its business and its network is so wide and deep that even a combination of

multinationals cannot hope to make any appreciable dent. The LIC also has a well-

developed and committed agency force and has also evolved good training facilities.

It has the required margins in its operational expenses to improve the remuneration to

agents and retain their loyalty in a competitive environment. It will be quite difficult

for any new company to quote more competitive premium rates than L1C32.

Mishra (1999), in his book entitled, "Insurance - Principles and Practice",

stressed that the investment of life funds should be made in those sectors which are

going to benefit the life business in return and suggested that the life funds should be

utilised to finance the schemes of housing, sanitation, medical and education which

will lower the mortality and gear up the standard of living of the people. The

decreased mortality and increased income cause more business to insurer because the

lower mortality tends to reduce the rate of premium which increases the business.

33Higher income induces persons to get more policies.

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Ajit Ranade and Rajeev Ahuja (2000), in their study on "Issues in Regulation

of Insurance", pointed out that regulation is an imperative at the commencement of

competition, especially in the insurance sector which is vulnerable to market failure.

Apart from the protection of consumer interest, the regulator's main brief would also

be to conduct a fair competition but not let it become 'cut—throat competition' that

results in multiple bankruptcies and market implosion34.

Rai and Rai (2000) conducted a study on "Role of LIC in Industrial

Development - A Pre and Post Liberalisation Review" and observed that the LIC has

given majority of its funds to a few selected industries thereby ignoring the balanced

growth of various industrial segments. It is found that more than 80 per cent of the

funds have been sanctioned to only five industrially developed states during the post

liberalisation period. They further suggested that the Corporation should also

encourage the entrepreneurs of other states to come forward and avail its funds for

productive purposes by organising special camps and advertising their loan schemes

in these neglected areas3.

Tuhin S. Banerjee (2000), in his study entitled, "Corporate Governance in

Indian Insurance Industry", highlighted that Indian Insurance did away with the

hypocrisy of just giving lip service to corporate governance. There will be

considerable trauma in making the transition from traditional to contemporary

governance practices, in bridging the credibility gap caused by the gulf between

expectations and reality. This is the birth of a new Indian insurance industry and birth

is always a painful process. But once this is done, the world is a far better place to

live in 36

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Punithavathi Pandian (2001), in her study entitled, "Impact of Liberalisation

on the Productivity of LIC Agents" assessed the productivity trend of the LIC agents

before and after economic liberalisation. She analysed that the linear growth rates of

the productivity of the agents in terms of the number of policies and the sum assured

were higher after the economic liberalisation when compared to the earlier period.

The difference between the compound growth rates of the number of policies sold

between the pre and post liberalisation periods was not significant but that of the sum

assured was significant37.

• Varma and Agarwal (2001), in their book 'Insurance' pointed out that life

insurance is superior to an ordinary savings plan because it affords full protection

against risk of death. There lies an inverse relationship between investment and

protection. For a lower investment, the protection will be the highest in the event of

premature death38.

Amarnath Sinha (2001), in his study entitled, "The Service Ideal", opined that(

in competitive times, the quantity of service will be a distinguishing quality of the

insurers and hence, the prospective customer will choose among insurers depending

upon the quality of service. 39

1 Abdul Rahuman (2001), in his study entitled, "Service as a Spear and Shield",

identified that prompt, efficient and effective service blended with utmost courtesy

and palpable empathy alone can provide organisations the much needed edge that will

enable them to forge ahead and ensure them growth and clothe them with the best

form of protection in a competitive environment. Marketing wizards reveal that

service of the above order will simply be the best weapon of offence and defence in a

keenly contested business arena. 40

21

,4 Kutty (2001), in his study entitled, "The Principle of Mutuality and Finance

Intermediation - the Case of Life Insurance", focused that the savings role of life

insurance contracts brings the application of mutuality principle in savings which

involves the pooling and evening out of both mortality and financial risk. This is

done by spreading the risk across various individual lives, different kinds of contracts

and finally various generations of policy holders.''

/'Rangachary (2001), in his study entitled, "Insurance —Regulator's Crucial

Role", highlighted that exposure to global competition is a powerful force that drives

improved efficiency, lowers costs, promotes innovation and professionalism in the

markets. The industry has to get going, not slowly but quickly into high gear. There

is scope for developing alternative distribution channels, which are often more

efficient. The alternatives include independent intermediaries, bancassurance, direct

marketing, internet and telemarketing. 42

1 Rama Krishnan (2001), in his study entitled, "Insurance Exit State

Monopoly", analysed that there is high expectation among the public that the opening

of the insurance sector and the entry of multinationals will not only lead to

introduction of innovative plans of insurance but also result in significant reduction of

premium rates. LIC has not tapped even 25 per cent of the group insurance market

potential. He also suggested that in order to achieve a better penetration into the

untapped group insurance market potential, a life insurance company need not recruit

an army of agents. A small band of well trained professionals (say MBAs) with

computer support, will be sufficient43.

Narasimha Rao (2001) made a study on "Performance of Public Sector - An

Overview of Insurance Industry" and critically analysed that liberalisation and

22

privatisation cannot solve the basic problems of a developing country like India.

Privatisation would only add the possibility of corruption and fraud and weaken the

gains that the economy has already experienced from the expansion of this sector. He

also pointed out that genuine positive reforms are required for generating especially

rural business in the insurance sector by retaining the business in public itself44.

Malliga (2002), in her study entitled, "The Study of Marketing Performance of

LIC Agents in Tirunelveli Division", identified that there was a significant association

between the education of the LIC agents and the marketing performance both in terms

of number of policies sold and sum assured. 45

, Julia Holyoake and William Weipers (2002), in their book entitled

"Insurance", highlighted that there is a link between sound insurance market and

industrial development. They also assessed that the large amount ofmoney at the

disposal of Insurance companies which is used with in the economy as a whole, is the

result of thousands of different people and in one sense, the existence of an insurance

market really brings about a form of enforced saving46.

Periasamy (2003), in his book entitled, "Principles and Practice of Insurance",

narrated that opening up of insurance to the private sector will substantially help in

enhancing savings mobilisation, offering a new range of insurance products, covering

a larger population and increasing the average per capita insurance premium and this

would be channelised for infrastucture development47.

Rangachary (2003), in his study on "Life Insurance Vision for the Future",

observed that despite its teeming one billion population, India still has a low insurance

penetration of 1.95 per cent, which is 51" in the world. There are 8.50 lakh life

insurance agents in India and qualitative selection of agents by insurers is imperative

23

to gain the cutting edge. He identified that 12 per cent of the world's insurance

products is sold through the internet. He also suggested that insurers must constantly

explore avenues to increase the number of distribution channels through a variety of

distribution patterns like internet, telemarketing, bancassurance and call centres' 8.

Mony (2003), in his study entitled, "Life Insurance Private Players

Initiatives", observed that as per Insurance Regulatory and Development Authority

(IRDA) regulations, all insurers have an obligation to fulfil in the rural and social

sectors. They have to sell 5 per cent of the total policies in the first year, 7.5 per cent

in the second year and up to 15 per cent in the fifth year to the rural sector. In the

social sector, insurers are required to insure 5000 policies in the first year, 7500 in the

second and upto 20,000 lives in the fifth year and beyond. To comply with the rural

obligations, the private players have tied up with Panchayat heads and Non—

Governmental Organisations. He expected that insurance will gradually cease to be a

mere urban phenomenon49.

Ramamurthy (2003) conducted a study on "Life Insurance Corpo'ration -

Advantage of Strong Base" and assessed that special efforts were made by LIC to

improve the claim settlement and the outstanding has been brought down to 0.5 per

cent of maturity claims and 4.45 per cent of death claims in 2002. LIC has a

meticulous method of tracing out policyholders who have moved and not claimed

their amounts. Lie opined that with the right kind of leadership and optimal utilisation

of resources, LIC can hope to continue to be the leader in life insurance in India for

decades to come.

0 Ravi Prakash, etal., (2003), in their study entitled, "Globalization - Its Impact

on Insurance Industry", made a modest attempt to discuss on the penetration of

24

insurance in India, challenges in front of the industry and the essentials to meet the

challenges. They assessed that the level of penetration of insurance is very low in

India. Due to poor quality of service, LIC faces the problem of surrender of large

number of policies, as new insurers will woo them by offering of innovative products

at lower prices. They also suggested that selection of the ri t type of distribution

mix, following the best investment practices, increasing the customer base in semi -

urban and rural areas, promoting health insurance and using e - broking are essential

for the growth of the Indian Insurance Industry51.

Raman and Gayathri (2004), in their study on "Customer Awareness Towards

New Insurance Companies", inferred that because of increase of the new companies'

attractive schemes and low premium, the investors have a forced attraction to invest in

the new Companies 52

Urvashi Makkar and Satish Kumar (2004), in their study entitled, "Changing

Scenario of Insurance Sector in the Wake of Privatisation and its Impact on Indian

Economy", assessed that Life Insurance Corporation has nearly eighty products but an

investor knows only about limited policy details and the agents of LIC inform him of

those policies with the highest premium which yield higher commission to them.

They also identified that with 6,00,000 agents in every nook and corner of the vast

country, it has created an invisible brand name, particularly among the rural

population of the country and there lies the potential for foreign players to challenge

this behemoth53.

Rajeev Ahuja (2004), in his study on "Insurance over the Transition",

highlighted the fact that eventhough the public insurance companies still dominate the

market, the fruits of competition are already visible in terms of wide range of

products, innovative bundling of insurance with other financial services, aggressive

marketing and better customer care. With the spread of insurance, people are

beginning to think of insurance as a real service, instead of being driven merely by tax

incentives or statutory insurance requirements54.

Gurusamy (2004), in his book entitled, "Financial Services and System",

viewed that with the liberalisation of the Indian economy, the insurance industry is

witnessing phenomenal growth and development with a large number of players,

especially the private players in the recent past. The Life Insurance Corporation of

India remains the single largest service provider in the realm of life insurance sector

while United India Insurance Corporation dominates general insurance business"55.

Sudarsana Reddy (2005), in his study on, "Customer Perception towards

Private Life Insurance Companies' Policies with Reference to Bangalore City",

identified that only a very few policies of private companies are better alternatives to

the policies of LIC. He also assessed that there is no risk and no need to worry about

their money, since all the private insurance companies are under the regulation of

IRDA56.

Krishnan (2005), in his study entitled, "Bancassurance - Maturing Markets",

stressed that the LIC has forged relationship with several major banks and a good

number of small banks across the country. Customers have also turned to the idea of

buying an insurance product through their banker and the success rate is on the

increase. Special campaigns organised in banks are also yielding excellent results

57especially in sales volumes.

26

1.4 Scope of the Study

The study can be attempted in two angles. One is from the angle of the LIC

which promotes life insurance service to the policyholders. The other is from the

angle of the policyholders who are utilizing various policies and other services of the

LIC. In the present study utilisation has been attempted from the point of view of

policyholders. Hence, the study covers the level of utilisation, factors influencing the

level of utilisation, attitude towards the various services of the LIC of India and its

operational efficiency.

1.5 Objectives of the Study

The present study has the following objectives.

I. To study the various life insurance plans administered by the LIC at present.

2. To study the operational performance of the LIC in Kanyakumari District.

3. To evaluate the extent of utilisation of different policies by different

policyholders in Kanyakumari District.

4. To locate the factors which influence the extent of utilisation of the services of

LIC by policyholders in Kanyakumari District.

5. To identify the attitude of the policyholders in Kanyakumari District towards

LIC and its agents.

1.6 Limitations of the Study

This study investigates the utilisation of the LIC by policyholders in

Kanyakumari District. The LIC authorities in Kanyakumari District hesitate to reveal

real particulars about their performance owing to severe competition from private

players. Hence, only limited information relating to the LIC could be collected from

27

the Kanyakumari District Statistical Hand Books. Based on the availability,

secondary data were collected for ten years up to 2003 - 04.

1.7 Operational Definition of Concepts

1. LIC/Corporation: The term LIC or Corporation is used to denote the Life

Insurance Corporation of India, a nationalized corporation which is

providing insurance and other related services to the public in India.

2. Utilisation: Utilisation means making use of and the extent of availing the

various insurance plans and the accruing benefits offered by the LIC to the

policyholders.

3. Policyholder: A Policyholder is a person who has taken at least one life

insurance policy from any one of the branches of the LIC.

4. Insurance policy: An insurance policy is a product offered by the LIC to

the public.

5. Policy Lapses: Failure or cancellation of policy due to non-payment of

premium even after the expiry of the grace period, by a policyholder.

6. Survival Benefit: The sum assured is paid in instalments when the

policyholders survive during the term of the Money Back Plans.

7. Risk Coverage: Risk coverage means the sum assured to be payable by the

LIC to the dependants of the deceased policyholder in the event of his

premature death.

8. Attitude of Policyholders: Attitude of policyholders means the opinion or

the view of the policyholders towards the services of the LIC.

9. Awareness of Policyholders: It means the bundle of knowledge possessed

by policyholders about the LIC and its products.

28

10. IRDA: It means Insurance Regulatory and Development Authority which

came into force in 1999 for regulating the operations of all insurance

businesses in India including the private sector.

1.8 Methodology

The present study is an empirical study based on the survey method. The

primary data collected from the respondent policyholders who took life insurance

policies from any one of the branches of Kanyakumari District are used for the study.

For the purpose of collecting the primary data, an interview schedule (Vide-

Appendix-A) was constructed by the researcher.

• The secondary data were collected from the annual reports of the IRDA and

LIC, Statistical Iland Books of Tamil Nadu and Kanyakumari District. The

researcher also perused many books, reports and journals containing useful

information pertaining to this research.

1.9 Construction of Tools and Pre-test

The interview schedule employed in this study was constructed by the

researcher with the help of his supervisor. In order to test the validity of the format, it

was given to research experts in the field of social sciences for evaluation. Further, the

researcher had consulted the officials of the LIC in Kanyakumari District in order to

enrich the contents of the schedule.

The variables of the study were identified by referring to various research

reports and in consultation with the supervisor. The variables, thus, identified have

been used to design the interview schedule. Then the rough draft of the schedule was

prepared. Keeping in mind, the suggestions of research experts including the

supervisor, the rough draft was revised and the final draft was prepared. The final

Rej

draft was then pre-tested with 60 policyholders. In the light of the suggestions

obtained from the pre-test, the modified interview schedule was constructed and used

for gathering primary data.

1.10 Sampling Design

The researcher has adopted multi-stage random sampling method to select the

respondent policyholders. There are four Branch Offices of the LIC functioning in

Kanyakumari District, two offices at Nagercoil, one at Thuckalay and the other one at

Marthandom. In order to conduct a deep study with regard to the utilisation of the LIC

by the policyholders, those who became policyholders earlier to March 31, 2005 were

considered. For selecting the respondents, the following process was adopted.

First, the list of all the 2172 agents who were working within the study area as

on March 31, 2005 was obtained from all the 42 LIC Development Officers working

in the four Branches. From the list, 105 agents were selected based on the simple

random sampling method (lottery method) and the complete list of 3517 policyholders

as on March 31, 2005 was obtained from them. Out of these policyholders, only 703

were selected on the simple random sampling (lottery) basis. The researcher directly

contacted the selected respondents and gathered information with the help of the

interview schedule. Since 83 respondents did not respond, only 620 samples were

finally selected for further analysis.

1.11 Geographical Coverage

The area covered for the present study is limited to the operational areas of the

LIC in Kanyakumari District which covers Agasteeswaram, Thovalai, KalkulaiTn and

Vilavancode Taluks. The study area covers urban, semi —urban and rural areas.

1.12 Period of the Study

The present study is aimed at measuring the extent of utilisation of the LIC by

the policyholders and the attitude of the policyholders towards the services of LIC in

Kanyakumari District. The primary data were collected from those who have become

policyholders earlier to March 31, 2005. The secondary data were collected for a

period of 10 years from 1994 - 1995 to 2003-04.

1.13 Field Work and Collection of Data

The researcher undertook the field work by directly meeting the sample

policyholders with the help of the interview schedule. The completed schedules were

checked and edited as soon as the data collection was over.

1.14 Data Processing

After completing the data collection with the help of the interview schedules, a

thorough verification was made. Next to that all the interview schedules were

codified for further analysis. Then all the schedules were processed through computer

with the help of SPSS package.

1.15 Measurement of the Variables and Framework of Analysis

The analysis is made with the help of the classification tables. The evaluation

of performance of LIC is made with the help of Compound Growth Rate and Linear

Trend Analysis.

The significance of relationship between the selected variables and the extent

of utilisation of LIC in terms of the number of policies, the sum assured, the amount

of premium paid and the attitude of the policy holders towards the services offered by

the LIC and its agents have been analysed with the help of Chi-square test.

31

Garrett's Ranking Technique is used to determine the purpose of utilisation of

LIC policies and to assess the factors responsible for the utilisation of LIC and the

policy loan.

Factor Analysis is employed to assess the factors responsible for the utilisation

of Housing Loan and to identify the factors inhibiting the attitude of the policyholders

towards the services of LIC agents.

1.16 Scheme of the Report

The report of the study is presented in six chapters.

The first chapter deals with the design of the study. It contains the

introduction, statement of the problem, review of literature the scope of the study,

objectives of the study, the methodology, the sampling design, the framework of

analysis and the scheme of the report.

The second chapter deals with the historical perspective of the LIC of India.

The third chapter gives a brief account of the appraisal of the functioning of

the LIC at the National, State and the District levels.

fhe fourth chapter analyses the extent of utilisation of the products and

services of the LIC by the policyholders in Kanyakumari District.

The fifth chapter emphasises the attitude of the policyholders towards the

services offered by the LIC and its agents.

The final chapter gives the summary of findings and throws light on the

problems encountered by the policy holders while dealing with the LIC and concludes

with the suggestions for the effective utilisation of the products and services of LIC of

India.

32

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