A Comparative Study of LIC of India and ICICI Prudential Life Insurance Company Ltd.: With Special Reference to Life Micro Insurance

Abstract

The present life insurance market is complex and competitive. It entails twenty four companies including one public life insurer i.e. LIC of India and ICICI Prudential Life Insurance Co. Ltd. which is the leading life insurer in private sector. Micro Insurance Act, 2005 is one of the important milestones in the development of insurance market. As per IRDAI guidelines, every life insurer has to procure at least twenty five percent rural business of the total business. Hence, the present study is an attempt to evaluate the performance of select life insurers in regard to life micro insurance in rural market. The finding of the study reveals that there is significant difference between the performance of LIC of India and ICICI Prudential Life Insurance Co. Ltd.

Keywords: Micro Insurance, IRDAI, LIC of India, ICICI Prudential Life Insurance Co. Ltd.

Introduction

Insurance being an important component of economy and financial system plays a crucial role in the life of people. It does not only protect the value of their life but also contributes in the socio-economic development of the country. So far as insurance sector in India is concerned, it is lagging behind as the seventy five percent of the total population are still without any insurance cover. The majority of the total population i.e. approx sixty eight percent live in the rural areas and their main occupation is agriculture that generates low income and low savings. Unfortunately, the farmers and other dependents’ financial conditions are not good. The primary reasons are irregular income, lack of proper management of agriculture produces, indigenous’ exploitations, corruption in state bureaucracy and dependency on monsoon. The persons who employed in agriculture sector especially farmers are considered as precious asset for the country. And therefore, Government of India has started many schemes and programmes. Among them, low-priced micro insurance policies are now assumed as a vital financial instrument to strengthening the economic condition of such people. On the other hand, to see enormous opportunities many life insurance companies have entered rural market with several life micro insurance policies.

As a matter of fact, life micro insurance policy provides different kinds of financial guarantee to policyholders. In spite of having all the ingredients, rural life insurance market has not achieved the success what our economists as well insurers expect from it. It may be possible that micro environment prevailing in rural areas are creating barriers and fog at the mental level of both parties i.e. insurers and customers. The policies of life insurance companies are still not rural centric catering to the specific needs of the people.

Literature Review

Barik and Patra  (2014) in their paper entitled on “Emerging Trends in Insurance- A Study in Indian Life Insurance Industry” find new trends such as hybrid distribution channel, regulatory trend, difficulty in designing marketing mix, online policy, claim management, customer servicing and FDI and growth.

Shahi, Prarthana (2013) in her paper on “Recent Trends in the Marketing Strategies of LIC of India” reveals that the contribution of LIC to total industry in terms of life insurance offices has dipped down from 99.41 percent in the year 2001 to 30.94 percent in the year 2012. She further states regarding the marketing strategies adopted by LIC such as facilities to their existing employees, increasing the number of individual agents, introduced Life-Plus offices, increase in women employees, bancassurance and alternate channels, corporate communication and international joint venture.

Bengal Chamber of Commerce and KPMG (2013) address the present context of insurance in regard to dynamics of external environment which changed the whole industry. Profitability, growth and risks are to be considered pertaining to shareholders view.

Singh and Lall (2011) in their paper on “An Empirical Study of Life Insurance Products and Services in Rural Areas” lay stress on the examination of opportunities for insurers in rural market and what would be new strategies to tap the highly underinsured rural area. He finds that insurance companies are fulfilling many purposes of investments and savings at a time but maximum respondents buy insurance policies for tax rebate and family safety. He suggests that micro insurance product should be developed for under privileged people and rural areas population and products should be designed as per their needs and income.

Sahu (2010) concentrates on current discussion and debate on micro insurance in India with focus on its outreach and efficacy and participation of the target groups in his paper on “Micro Insurance in India: Outreach and Efficacy”. He founds that existing micro insurance products are not demand driven in both high and low outreach areas. He further observes that there is lack of understanding, awareness, extension services and development of insurance market that grossly impact wider use of insurance products and its uptake particularly among low income groups.

Objective of the Study

The objective of the present study is to examine the performance of LIC of India and ICICI Prudential in context of life micro insurance policies issued under new business.

Hypothesis

H₀: There is no significant difference between LIC of India and ICICI Prudential in terms of number of life micro insurance policies issued under new business.

H₁: There is significant difference between LIC of India and ICICI Prudential in terms of number of life micro insurance policies issued under new business.

Methodology

The present study is descriptive in nature. It includes the individual life micro insurance policy of the selected insurers. It is based on secondary data gathered from annual reports of concerned units. The period of study covers post Micro Insurance Act, 2005 i.e. ten years from 2006-07 to 2015-16. Descriptive statistical tools like growth index, mean, standard deviation, CAGR, and t-test have been applied for the purpose of analyses.

Data Analysis and Interpretation

Life insurance falls under the category of unsought product. The product mix of life insurers contains life micro insurance products in the form of special plan. Micro insurance is a plan offered to the lower and economically backward masses due to their low purchasing power. That means they are not able to afford high premium charged in other plans. The Micro Insurance Act, 2005 advocates the wide spread of micro insurance policies. As a matter of fact, the micro insurance coverage is still at incipient stage. Table 1 highlights the performance of LIC of India and ICICI Prudential with respect to life micro insurance plans under new business.

Table 1: Performance of LIC of India & ICICI Prudential with Respect to Life Micro Insurance under New Business

Source: Annual Reports of LIC of India & ICICI Prudential

It is clear from the Table 1 that LIC of India has performed well as compared to ICICI Prudential in terms of compound annual growth rate, mean and growth index. The average number of policies issued by LIC of India is 18.63 lakhs whereas in case of ICICI Prudential it is 3.79 lakhs which is five times lower to LIC of India. The standard deviation of LIC of India is high which reveals that there have been fluctuations and data have been spread out over a wide range of values. The growth index of LIC of India connotes that it has increased to more than five times whereas the ICICI Prudential witnessed downfall to more than half times during the period under the study. The contribution of life micro insurance business to total business is low in LIC of India as on an average it is 7 percent approximately while it is about 27 percent in ICICI Prudential. 2011-12 and 2012-13 witnessed high contributions in life micro insurance new business by both life insurers. Thus, it is evident that ICICI Prudential has higher contributions in rural market as compared to LIC of India. So far as number of policies issued is concerned, LIC sold 5 times more than ICICI Prudential.

Hypothesis Testing

H₀: There is no significant difference between LIC of India and ICICI Prudential in terms of number of life micro insurance policies issued under new business.

H₁: There is significant difference between LIC of India and ICICI Prudential in terms of number of life micro insurance policies issued under new business.

Source: Computed from SPSS 17

Table 2 reveals about the independent sample t-test applied for the performance comparison of LIC of India and ICICI Prudential. Levene’s test for equality of variances through F-test shows the significance value .001 < .05 which denotes that variances are not equal. Further, under t-test null hypothesis is rejected and alternate hypothesis is accepted as the significance value is .006<.05 which indicates that there is significant difference between LIC of India and ICICI Prudential in terms of life micro insurance.

Concluding Remarks

It may be concluded from the above analyses that both life insurers have procured rural business by offering life micro insurance, however, LIC of India has shown better results as compared to ICICI Prudential in terms of compound annual growth rate, mean and growth index. But, the contribution made by LIC of India to total business is lower as compared to ICICI Prudential. Further, it is also clear that there is significant difference between LIC of India and ICICI Prudential Life Insurance in terms of life micro insurance under new business during the period under the study. It is suggested to LIC of India to enhance the proportion of life micro insurance to total business as rural folk constitutes a major portion of the population in India. LIC of India should target rural market more effectively. There is a great challenge before ICICI Prudential to regain its growth rate as it is declining. At the end of ten years its’ life micro insurance business is standing at more than fifty percent downfall. Therefore, ICICI Prudential needs to focus on its’ boosting the number of policies issued. ICICI Prudential needs to widen its market network in rural India and should adopt localised ways of promotion and distribution in the concerned market.

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About the Author

Dr. Furquan Uddin
Post-Doctoral Fellow
Department of Commerce
Aligarh Muslim University
Aligarh, U.P.