India’s largest life insurance company, Life Insurance Corporation (LIC), was birthed and grew under state protectionism but its best years in the business coincided with the opening up of the Indian economy in 1991.
The latest annual report of the Life Insurance Corporation lists the names and designations of its key officials over 10 pages. But when it comes to giving details of companies in which it holds shares worth about ₹470,000 crore, India’s largest life insurer is reluctant to share information. Even to its millions of policyholders, LIC’s equity portfolio—bigger than that of any mutual fund in India—is largely an unknown.
Contradictions run rife through the 66-year-old LIC, which is looking to make India’s biggest share listing. LIC seeks a premium for size but discounts transparency. LIC exists to service policyholders but occasionally channels their savings for purposes that yield sub-optimal returns while servicing objectives of its owner, the central government. LIC was birthed and grew under state protectionism, but its best years coincided with the government lifting the shroud over the economy in 1991.
LIC’s history can be divided into four phases. The first phase is its formation and formative years, which were framed by growing defaults in the life insurance industry and a policy orientation that assigned a central role to the state. Thus, in 1956, the government nationalized 245 entities involved in life insurance, and created LIC through a Parliamentary Act. LIC’s objectives was, in its own words, “of spreading life insurance much more widely and in particular to rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.”
While its stated objective was to provide life insurance, it packaged this as an investment, as life insurers do. At a time when Indian households had few investment options beyond bank deposits and small savings schemes, LIC became a verb. Its new business, in terms of insurance cover assured, grew from ₹200 crore in 1957 to cross ₹1,000 crore in 1969-70. This pace then slowed, and LIC took a whole decade to double this amount.
In the eighties, an internal reorganisation shaped its second phase. The centerpiece of this exercise was to have a branch office in each district headquarter. Servicing functions were transferred to these branches and they were made accounting units. This gave them greater autonomy and a framework to pursue growth. In 1985-86, LIC crossed ₹7,000 crore in new business.
This expansion in geographical footprint set it up for its third phase, which coincided with a seminal moment in Indian’s economic history. In 1991, India started opening its economy in a big way. Two things happened. One, India’s economic growth shifted to a higher trajectory since the 1980s, raising disposable incomes significantly by the early 90s. Some of the resultant surpluses found their way into hard-selling life insurance products. Two, in 2000, the government allowed the private sector back into the life insurance business.The entry of private players expanded the life insurance sector. In nine of the first 10 years, total premiums collected by life insurers grew in double-digits, shows data from the Insurance Regulatory and Development Authority of India (IRDAI), the sector regulator. During this period, though LIC trailed overall sector growth and its market share fell to 70%, it rode an expanding market. But as the industry matures and growth rates stabilise, growth of private players is beginning to come at LIC’s expense.