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 Draft Red Herring Prospectus (DRHP) in which it has stated that it will offer 316 million-plus equity shares to investors. This sale is part of the central government’s plan to fund capital expenditure and to bring down the fiscal deficit. At this stage, some key details such as price band are yet to be disclosed.
With so much buzz around LIC’s upcoming IPO, let’s today a look at the key developments that led to the beginning and growth of LIC in India.
Oriental Life Insurance Company was an English insurance company that was opened in Calcutta (now Kolkata) to cater to the insurance needs of the British and other Europeans. Indians were charged a heavy premium to insure their lives. This company, however, closed down in 1834. An insurance company is nothing but a company that distributes the risk among its policyholders and charges a premium from all of them in return for doing that. It is reported that Oriental Life Insurance could not adjust its risk distribution effectively and, therefore, had to close down.
This was the first insurance company started by an Indian citizen. The company charged a nominal premium for insuring people’s lives. This was also the year when the British Insurance Act, 1870 was enacted in London.
By 1912 there were a lot of foreign insurance companies operating in India. To protect their interests, the Indian government under British Rule decided to bring in a legislature to regulate this sector. The Indian Life Assurance Act, 1912 was passed. This Act was later amended in 1934 to include more comprehensive provisions.
Nine years after India attained freedom from British rule, the Government of India issued an Ordinance on January 19, 1956 to nationalise 154 Indian insurers, 16 non-Indian insurers, and 75 provident societies (total 245). On June 19, 1956, the LIC Act was passed and on September 1 the same year, LIC was formed with an initial capital of Rs 5 crore. LIC started with five zonal offices, 33 divisional offices, and 212 branch offices.
For a while, there was no Act or regulation regarding the insurance sector. In 1972, the General Insurance Business (Nationalisation) Act, 1972 was passed to nationalise the general insurance sector.
Here are some of the recent developments that affected LIC too and made it into the company that we know today:
To aid policyholders and for the convenience of other stakeholders, LIC started a new online policy report accessing the system from July 1995. Policyholders could now view their policy status report, see prompt acceptance of their premium, and also get revival and loan quotations on demand.
In its report, the Malhotra Committee said that there should be an autonomous regulatory body to oversee the developments in the insurance sector since the sector was to be opened to private sector companies. The IRDA ACT, 1999 was passed in the Parliament based on this report. Irda stands for Insurance Regulatory and Development Authority of India, which is the insurance regulator.
The insurance sector was opened up for foreign direct investment and private sector, though foreign ownership in any insurance company could be a maximum of 26 per cent.
Due to severe competition from foreign companies and their highly skilled managers, LIC decided to sponsor an Executive MBA course from IIM-Ahmedabad for its managers.
To compete with new-age insurance companies, LIC upgraded both front-end and back-end applications. The existing Electronic Front End Application Package system was written in COBOL programming language, which has been there since 1959. The upgrade contract was awarded to Indian IT major Wipro.
Some marketing and development managers and employees used to get a car for marketing and other business requirements. However, due to a change in income tax prerequisite provisions, thousands of LIC employees would have had to pay additional income tax when they got this car under the internal LIC scheme. So, the insurer proposed to spend Rs 1 crore to transfer back 6,000 cars to itself. Doing so made LIC the only corporate organisation then to have so many cars under its own name.
According to a report by London-based Brand Finance, a consultancy company, LIC’s brand value was estimated at $8.1 billion. LIC is the only Indian company to be featured among the world’s top 10 most valued insurance companies.
The LIC initial public offering (IPO) is set to be the largest IPO of India ever. The Government of India plans to offer 5 per cent of its equity stake in LIC. The market's appetite for such a big IPO may, however, have dampened due to the recent IPOs of several loss-making new-age companies. Due to this, the size of the issue 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 amend the Issue of Capital and Disclosure Rules (ICDR) as just 10 per cent stake in LIC was worth more than Rs 1 lakh crore. The new rules were made so that the IPO size can be Rs 10,000 crore plus 5 per cent of the incremental market capitalisation amount beyond Rs 1 lakh crore for very large companies.
