Key events that made LIC the largest and most valued life insurance company in India
Life Insurance Corporation of India (LIC) is the largest public sector insurance company in India. Until October 24, 2000, the insurance sector was closed to private sector companies. Today, in 2022, there are 24 life insurance companies in the country, including LIC.
On Sunday, February 13, LIC filed its Red Herring (DRHP) draft prospectus in which it said it would offer over 316 million shares to investors. This sale is part of the central government’s plan to finance investment spending and reduce the budget deficit. At this point, some key details such as the price range have yet to be disclosed.
With so much buzz surrounding LIC’s upcoming IPO, today let’s take a look at the key developments that led to the start and growth of LIC in India.
1818 – India’s first life insurance company opened
Oriental Life Insurance Company was an English insurance company that was opened in Calcutta (now Kolkata) to serve the insurance needs of Britons and other Europeans. The Indians had to pay a heavy premium to insure their lives. This company, however, closed its doors in 1834. An insurance company is nothing but a company that distributes the risk among its policyholders and charges a premium to each of them in exchange for it. It is reported that Oriental Life Insurance could not effectively adjust its risk allocation and therefore had to shut down.
1870- Bombay Mutual Life Assurance Society
It was the first insurance company established by an Indian citizen. The company charged a nominal premium to insure people’s lives. It is also the year of the enactment of the British Insurance Act of 1870 in London.
1912 – Statutory Indian Insurance Act
In 1912, many foreign insurance companies operated in India. To protect their interests, the Indian government under British rule decided to set up a legislature to regulate this sector. The Indian Life Assurance Act, 1912 was passed. This law was later amended in 1934 to include more comprehensive provisions.
1956- Birth of the LIC
Nine years after India freed itself from British rule, the Indian government issued an order on January 19, 1956 to nationalize 154 Indian insurers, 16 non-Indian insurers and 75 provident societies (245 in total). On June 19, 1956, the LIC Act was passed and on September 1 of the same year, LIC was formed with an initial capital of Rs 5 crore. The LIC started with five area offices, 33 division offices and 212 branch offices.
What happened after the adoption of the LIC law?
For a time, there were no laws or regulations regarding the insurance industry. In 1972, the General Insurance Business (Nationalization) Act 1972 was passed to nationalize the general insurance industry.
Here are some of the recent developments that also affected LIC and made it the company we know today:
1995- First incorporation of online systems
To assist policyholders and for the convenience of other stakeholders, LIC launched a new online policy report accessing the system from July 1995. Policyholders could now view their policy status report, see the quick acceptance of their premium and also get stimulus and loan quotes on demand. .
1999- Adoption of the IRDA law
In its report, the Malhotra Committee said that there should be an autonomous regulatory body to oversee developments in the insurance sector since the sector was to be opened up to private sector companies. The 1999 IRDA law was passed in Parliament based on this report. Irda stands for Insurance Regulatory and Development Authority of India, which is the insurance regulator.
2000- Opening of the insurance sector to the private sector
The insurance sector has been opened up to foreign direct investment and the private sector, although foreign ownership in any insurance company can reach a maximum of 26%.
2009- IIM-Ahmedabad Executive MBA
Due to strong competition from foreign companies and their highly qualified managers, LIC decided to sponsor an Executive MBA course from IIM-Ahmedabad for its managers.
2013- Computer upgrades
To compete with new-era insurance carriers, LIC has upgraded the front-end and back-end applications. The existing front-end electronic application package system was written in the COBOL programming language, which has been around since 1959. The upgrade contract was awarded to Indian IT company Wipro.
2014- LIC car fleet
Some marketing and development managers and employees used to get a car for marketing and other business needs. However, due to a change in pre-income tax provisions, thousands of LIC employees would have had to pay additional income tax when they obtained this car under the LIC internal scheme. . So, the insurer offered to spend Rs 1 crore to transfer 6,000 cars to itself. This made LIC the only company then to have so many cars under its own name.
2020 – Brand value at $8.1 billion
According to a report by Brand Finance, a London-based consultancy, the value of the LIC brand was estimated at $8.1 billion. LIC is the only Indian company to be among the top 10 most valuable insurance companies in the world.
2021- IPO of LIC
LIC’s initial public offering (IPO) is set to be India’s largest ever IPO. The Indian government plans to offer 5% of its stake in LIC. Market appetite for such a large IPO, however, may have waned due to the recent IPOs of several loss-making new-age companies. For this reason, the size of the problem is not yet decided. But the IPO is expected to be so huge that the market regulator, the Securities and Exchange Board of India (Sebi), had to change the Capital Issuance and Disclosure Rules (ICDR), as only 10% of the stake in LIC was worth more than Rs 1 lakh crore. The new rules have been set so that the IPO size can be Rs 10,000 crore plus 5% of the amount of additional market capitalization beyond Rs 1 lakh crore for very large companies.