How LIC's Agents Changed India FOREVER turning it into a 22 Lakh Crore Company ? : LIC Case Study thumbnail

How LIC’s Agents Changed India FOREVER turning it into a 22 Lakh Crore Company ? : LIC Case Study

Hi everybody in march 2022 india is about to witness its biggest ever ipo in the history of the stock market because the country's largest insurance company lic is about to give away five percent of the indian government's take to potentially raise nearly eight billion dollars lic is an iconic company in the indian business history that has been.

Dominating the indian insurance sector since 66 years now and what blew our mind is that lic is so huge that in 2017 while government of india's budget was 383.93 billion dollars lic's assets under management itself was 403.44 billion dollars the customer base of lice is nearly six times the population of uk and with more than 280.

Million policies it is the fifth largest insurer in the world in terms of insurance premium collection as of 2020 and today lic is not just an insurer but a nation builder and employment generator and a critical financial conglomerate of india the question is what is the story of lic how did it become such an important engine in.

India's growth history and most importantly as investors what are the factors that you need to consider before you invest into lic or similar companies this video is brought to you by small case but more on this at the end of the video the story of lic dates back to 1956 india back then it had been just nine years since the britishers had left.

India and india was still recovering from the scars of colonialism after 200 years of ruling the brits had left behind in india that was not only economically poor but also lagged in self-confidence and believed to prosper in the mid-1950s while the leaders of us and uk were executing social security schemes indian poverty rates had reached.

A maxima wherein 61 of india's population was living in poverty in 1954 on top of that we saw multiple disease outbreaks like malaria and cholera during that time and with our healthcare system still in its prenatal stages mortality rates in india were very very high now at the micro level if you look at the indian households in 1950s most.

Of them only had a single earning member with multiple dependents in some cases there were eight dependents in a family with just a single earning member so if anything happened to that one earning member the entire family was vulnerable to poverty as a result financial security in india was the need of the hour now the leaders of india knew that.

Life insurance was very very important and there were already 245 insurance companies operating in india but the problem with these companies was that they only cater to the urban pockets as in they only cater to the rich people who could pay a heavy premium and it was quite understandable because if they wanted to make a profit that was the.

Only way to operate this is the reason why insurance was out of the reach of those vulnerable segments of population that actually needed it which were the rural and lower economic start of india however from the government standpoint if these people did not get insured they were extremely vulnerable to poverty which in the long.

Term was very very dangerous for the economy of india this is the reason why on 1st of september 1956 a new engine for indian economy was born which was known as the life insurance corporation of india lic was formed by bringing together two 45 small and big private life insurance companies and the vision was to make.

Sure that insurance is accessible through the lens and breadth of the country regardless of the economic strata of the population all of these companies together amounted to 27 000 employees 50 lakh policies assets under management of 400 crores and insurance covers of 1 000 crores now the question over here is if 60.

Percent of india was living in poverty these people were already struggling for food and water right then during such a critical time during such an adverse condition how do you get someone to pay for something like life insurance well this is where we saw the rise of lic agents and in the 1950s 60s and 70s in the absence of any digital medium back.

Then lic's huge sales force traveled to every nook and corner of the country by cars buses trains motorbikes and in some cases even bulla carts to achieve lic's vision of securing the poor families of india and mind you it wasn't easy at all it took lic not 5 not 10 not 15 but 30 long years to first educate the poor then to instill the importance of.

Insurance among the poor and then to normalize spending on insurance so basically lic worked very hard and spent 30 long years in creating an industry for every other insurance company that entered the indian market this insane persistent and sheer genius in establishing the importance of insurance to the lower economic start of.

India is something that is an invaluable contribution of lic this is where the second phase came in and that was in 1999 when the government of india opened up the market for private players and it resulted into 10 entities entering the space which finally ended lic's monopoly of 44 years this is where most of these brands like.

Hdfc and icsi which had a banking presence started entering the space in a joint venture with world's largest insurers who had a vast experience of cross-selling insurance and like we saw in sectors like airlines and telecom government-backed organizations like air india and bsnl often lost their shield when private.

Players entered the market and this was majorly because they could not deliver on the aspect of customer experience and the same thing was also expected out of lic but you know what guys in case of lic in spite of the entry of many private players with deep pockets from insurers all across the world lic still stood tall as a dominating force in the.

Indian market the question is what was so special about lic for starters the synonymity of lic with insurance was something that was very very difficult to break when you say insurance people by default thought about lic secondly lic was excellent with settling claims and boasted of a.

Claim settlement ratio of 98.31 which meant that out of 100 people who applied for the policy and paid for it 98 people's families received the insurance money on the death of the earning member now usually if you've ever been to a government organization mostly the staff doesn't talk to you properly i'm not talking about all but.

Mostly this does happen and because of the bureaucracy and extreme job security there is often a sense of lethargy that kicks in because of which even the smallest processes often take a lot of time but in case of lic that did not happen because lic instilled that attribute in its employees which was way more.

Powerful than any protocol or incentive and that was the sense of empathy lic in spite of being so huge invested heavily into not just training its employees but also into making them realize that the work was no ordinary work at all the officers were taught that with each passing day of delay it is costing an entire family's life if they sat on.

Papers and procrastinated it it meant that they were adding to the problems in the lives of those families who desperately needed the money and this sense of empathy and bias for action was a crucial factor to ensure speedy claim resolution back when automation did not exist thirdly lic became more and more agile with time for example at one given.

Point in time lic knew that its central reporting structure was creating a bottleneck in quick resolution earlier branches were only business procurement centers and the claim settlement process always needed approval from the central and zonal offices and this approval procedure used to take a lot of time because of which the back and forth.

Resulted into a lot of delays this is the reason why lic undertook a massive decentralization project to move decision making from the central office to the zonal office then to the divisional office and finally to the branches this is the reason why by 2013 41 of the 43 divisional offices were functioning.

Almost independently this gave a rapid boost to the claim settlement process but all of this alone was not enough to counter competition back in the 1990s when reese killing and upskilling weren't buzzwords in the industry lic invested heavily into continuous learning of its agents to both educate.

The staff and to understand the needs of the market this feedback loop gave lic critical insights based on which they could refine their business and launch new products and you know what guys lic was one of the first companies to introduce the concept of big money through big sale what this means is that back then.

Because agents were deployed on a commission basis their focus was on selling the smaller covers of 25 to 30 lakhs because your premiums was very less and they could easily push the sale and get the commission as a result even if the family gets the insurance of 25 to 30 lakhs if their earning member drew a salary of one lakh.

Rupees per month this little cover of 25 lakhs was barely enough for just two years of her income so the insurance was barely effective in covering the needs of the family in the absence of the owner but this is where lic deployed a method called some assured on the basis of human value and in this method they said.

That the cover must be decided not just on the basis of the offerability but also on the basis of the financial needs of the family so if a person's family needs one like rupees per month for utilities and discretionary spends the insurance cover should be decided in a manner that in the event that a person dies his family should get this 1 lakh.

Rupees per month or 12 lakh rupees a year for his insurance policy so basically an assured sum of 1.2 crores must be payable over the next 10 years this back of the hand calculation is what decides whether the total cover should be 50 lakhs 1 crore or two crore and this was deployed by lic to make sure that their customers get the real.

Value of the insurance similarly when agents did not sell low ticket plans lic designed special rural plans to cater to the needs of the rural and semi-urban part of india by which both the agents and the customer could be benefited and eventually lic started selling a large number of low ticket policies to the economically weaker.

Section of india this is how through intense effort into educating india in the past 60 years through agility and constant learning lic has remained a successful government entity without succumbing to the pressure of socialism and this brings me to another very very important factor and that is how did lic as an entity contribute to the economy.

Of india to put that straight you see the beauty of insurance lies in risk pooling so at any given point of time let's say a life insurance company collects 500 rupees premium from 10 lakh customers that gives them a capital of 50 crudes out of which 20 to 30 girls might go into settlement and expenses but the remaining 20 crores would still.

Lie idle which is why lic considered putting this money to task by investing into financial instruments so that they could generate better returns with this ideal money so in 1956 when lic was formed the government wanted to ensure that the nation's savings invested in insurance policies were directed towards building infrastructure and providing.

Amenities to the masses in rural and urban areas so some regulations were designed wherein lic had to invest its money as per the following guidelines fifty percent of its aum had to be invested in government and government-backed securities thirty-five percent of its aum approved investments only through public or private sector.

Bonds or equities and fifteen 15 could be invested on discretion and guess what this mobilizing of funds became such an important contribution to the indian economy that it gave lic the title of a nation builder itself why because out of its 25 lakh crows in assets 65 was invested towards the.

Social sector especially in power water supply sewage and transportation and this humongous capital laid the foundations for the infrastructure of india in fact even when the road ministry under nitin gadkari sir had announced to increase the coverage of national highways to 2 lakh kilometers in 2016 they had outlined a budget of.

2.5 lakh crores out of which 50 000 crews was to be pumped in by lic alone similarly lic played an important role in housing schemes even before hdfc even when housing was not even a priority for banks at all fun fact is that lic was also known to be a stock market stabilizer in 1986 when the kashmir conflict escalated to a.

Full-scale war between india and pakistan the indian stock market had plummeted causing many prizes to be manipulated by speculators but in just a matter of few days under the direction of the government of india lic pumped in close to 5 crore rupees to provide some stability to the market and in the recent times lic has been pumping close.

To 50 000 crores in the equity market mainly in nifty 50 companies this is how lic has not just been an insurer but also an important pillar for the development of india and this brings me to the most important part of the episode and that is considering all the rosy picture about lic that you have now as investors what.

Are the pointers of concern that you are supposed to consider while you invest in lic or similar companies before we move on i want to thank our partners small case for supporting our content if you are someone wants to strategically invest into insurance and banking firms you can use the small case app to do so small kiss is a wonderful app that.

Creates a basket of stocks to help you make the best investments in any market condition in this case the most relevant small case are the insurance tracker and banking tracker the best part about small case is that the small case manager himself will rebalance the stocks according to the market conditions so that you can get the best.

Returns in any market condition also even if you do not want to make any investments you can use their new section and free blog post to get the best in the latest market insights so if you are someone who wants to make the most strategic investments into the stock market download the small case app from the link in the description moving.

On to the pointers there are three pointers that we need to keep in mind before you invest into lic number one lic even today is extremely dependent on agents now although this is an important pillar of growth with threats like covet that completely curbed traveling dependency on agents hasn't proven to be very very helpful and at the same time.

During covalent life insurance as a sector has grown rapidly so with the rise of internet penetration reliability on agents alone may not be the best for the company secondly you need to keep in mind that insurance is not like any other business so financial indicators need to be studied differently and in a much better manner in this case let's.

Say today lic collects premium worth 50 crore rupees this 50 crore rupees cannot be considered as revenue right because next year if 100 people die this capital needs to be deployed similarly you can't expense this figure to derive profit and loss statements like we do for other companies which is why you need to learn about something called embedded value.

This is a little complex so i'll give you a link in the description so that you can understand this concept better and lastly one of the best ways to understand how a company is performing would be to keep an eye on the competitors and to draw a comparison based on their strategies in this case i would highly recommend you to keep an.

Eye on the innovative solutions deployed by hdfc and icse and for this you could actually use the small case news section which will be very very handy in getting the latest market updates and latest strategies and i'm also attaching a link to an old video of things cool that throws light on the evolution of the new age of insurance so do have a look at.

All of these materials and let me know what you think about in the comment section that's all from my side for today guys if you learned something available please make sure to the like button and automatically bubba happy and for more such insightful business and political case studies please subscribe to our channel thank you so much for.

Watching i will see you in the next one bye bye

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