Organisation Structure of LIC

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Chapter 12

ORGANISATION STRUCTURE

Presented by Smt.Pushpa N. Rajput

AAO(Investment)Central Office


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INTRODUCTION

Organisation structure refers to arrangementsmade for smooth running of Business activities.

The arrangements depend on the nature and

extent of business e.g. a shop, a partnership

firm, a co-operative society, a factory, etc.

It involves identifying the important activities

and grouping them according to similarity,

relatedness and importance. e.g. revenuegenerating activities are more important that

non-revenue generating activities and


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Customer related activities are more important

than internal administration related activities.

Grouping of activities leads to formation of

offices, departments and sections.

Responsibilities & Authorities are defined and

delegated to people and their position,designation, places in offices are fixed. e.g. an

officer or a supervisor will be given the

responsibility of doing a particular job and will

be given the authority to get the job done fromhis subordinates or clerk

An organisation is then said to be in place.


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IMPORTANT ACTIVITIES

The important activities in a life insurance companyare:

Procuring applications or proposal of insurance fromprospective buyers

Underwriting i.e. scrutinising the proposals andtaking decision on the proposals

Issuing policy document incorporating the terms andconditions of the risk cover.

Monitoring the performance of insurance contract by

either party, like payment of premiums Attending to various requirements that may arise

during the duration of the contract like assignments,nomination, alteration of terms, surrender & claimpayments.


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Other Activities : Advertising publicity of their product

Investment -- funds obtain from premium collectionare to be invested in the most profitable manner soas to maximise returns.

Accounting- recording all the transaction takenplace.

Personnel Management managing the staffrequirement, employing new people, training themand making payment of salaries and wages.

Data processing keeping and maintaining all therecords on the computer of the policies issued

Compliance of laws regulations abiding to therules and regulations.


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All the above activities are organised

depending on the size of operation i.e. Either these activities are concentrated in one

place

Or distributed between different offices.

Business transacted in different countrieswill have different organisation structure

depending upon the laws of that countryand market for business.


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INDIAN CONTEXT

Earlier many insurers hired specialisedagencies to do the administrative work.

These agencies managed various kinds

of business and were not aware of thespecial discipline required for insurancebusiness.

Life insurance business wasnationalised in India in 1956. Since thenLIC and PLI were doing life insurancebusiness until the year 2000


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Because in the year 2000 several new insurance

companies have started life insurance business.

Each Company has a different organisationalstructure i.e. different offices, authority,

responsibility vested on different positions.

LIC transacts business throughout India and also

in foreign countries like UK, Mauritius, Fiji, Kenya,

Nepal & Bahrain.

Own Offices - UK, Mauritius, Fiji,

Joint Ventures - Kenya, Nepal & Bahrain. Since 2000 only Indian companies are allowed to

transact insurance business & foreign insurers can

only be shareholders in Indian Companies.


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STRUCTURE OF LIC.

Central Govt. appoints not more than 16members of LIC.

Out of these 16 members 3 are full time

employees of LIC. 1 Chairman and 2Managing Directors.

These members are highest decision

making body of LIC, similar to the boardof directors of companies.


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4 TIER STRUCTURE OF LIC

Central

Office

7 Zonal Offices

100 Divisional Offices

2000 Branch Offices.


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PLI- Postal Life Insurance

Part of Central Govt. Directorate headed by Chief General

Manager.

Supervision and control of PostalServices Board.

District Postal Head Office looks after allPLI operations in a particular districtincluding sales and payment of claims.


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Premiums are collected by all postoffices but final accounting is done at

office of Director of Accounts in

Calcutta. Personnel attending to postal system

jobs also looks after the administrative

work of Postal Life Insurance.


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Organisation Structure of LIC

Until 1981, the Branch Offices only

procured new business and registered

the proposal and collected premium.

Divisional Offices did underwriting, issue

of policy, policy servicing

As divisional offices were few compared

to Branch offices, policy services proved

to be costly and time consuming.


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BRANCH OFFICE After 1981, Branch Offices did all the jobs

from acceptance of proposal to payment ofclaims.

Branch Office is the Basic unit of growth and

profit. Agents and Development Officers are part of

a Branch Office.

People are reluctant to buy life insurance asthey have to pay for a benefit which is vagueand far away. They are to be persuaded &this job of persuasion is done by agents.


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LIC has more than 6 lakhs agents. Agents of

other new insurance companies are called

advisors or consultants. In other countries, there are colleges of

Insurance which offer long duration courses

to leading agents to get degrees likeaccountant, company secretary or architects.

These courses are given because

professional agents advice are valued more. In India, there are organisation which offer

courses for agents in insurance related

matters


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BROKERS

Brokers canvass business and lace the same withinsurer on certain negotiated terms.

Broker does business for more than one insurance

company.

He collects commission from the insurer & does

not charge the customer.

In India, the system of brokers was not permitted

earlier, but now the IRDA has issued regulationsregarding operation of Brokers, which state that

Brokers have to obtain licenses from the Govt. in

order to procure business & receive commission


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Direct Selling

Life insurance has been sold mainly throughagents.

As part of the strategies to reduce costs,insurers are exploring various methods of

direct selling, thereby bringing down costs byeliminating the intermediary.

Through internet, buyers can access

information about various plans of insuranceand also the premium rates offered. Insurersare keen to take advantage of the newtechnology but are approaching it cautiously.


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New Insurance Companies

New insurance companies are managed by aBoard of Directors, of which one is therepresentative of customers.

They have two tier structure. Head office

Branch offices

Most companies have their own Branch Offices,however some have tied up with their associateorganisation mainly Banks, which has a large

network Branch offices concentrate on procuring business

and building clientele. Head office looks afterunderwriting and administering the policies.


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Internal Organisation

In an insurance office, departments areformed based on the following activities

Business development or Agency or

marketing procuring business New Business receiving, scrutinising

& underwriting new proposal and issue

of First Premium Receipts & Policy.


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Servicing Policy Holders

Monitoring premium payments. Lapses & revivals

Alterations, nominations, assignments

Surrender, loan & claim settlement Accounting financial flows


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Following departments are likely to be

centralised as they require specialised skills

Actuarial studying the experiences, doing

valuations, declaring bonuses on the with

profit plan policy, monitoring adequacy ofpremiums, setting underwriting standards,

studying mortality rate

Investments of funds studyingopportunities for maximising returns

Advertising, publicity & public relation.


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Some of the following departments will

be found in all offices, sometimes looking

after the needs of that office alone orsometimes looking after the entire office:

Personnel Recruitment of staff,

payment of salary, etc. Human Resources Development

Training

Purchases(of stationery, office

equipments,etc)

Administration for office upkeep


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The Actuarial Profession

An Actuary

is a person who has passed specialised examsconducted by the Actuarial Society of India or theInstitute of Actuaries , London

is the technical expert on life insurance mattersstudying the mortality of the insuring public.

evaluates the financial condition of the insurer Determines the policies to be offered and at what

premium rates.

Makes rules to follow for underwriting andinvestments of funds.

Decides the bonus that could be declared onparticipating policies.

A good actuary is a good economist, a goodstatistician and a good security analyst.


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Insurance Regulatory and Development Authority

(IRDA) Regulations requires that every life

insurance company must have an Appointed

Actuary, who will perform the following jobs :

Continuously study the companys operation and

advise them on the product design and pricing,

insurance contract wordings, investment andreinsurance.

Do periodical valuation of the company as per the

provision of the Insurance Act and ensure the

solvency of the insurer at all times.

Certify the premium proposed to be charged by

the insurer before submitting for approval of the

IRDA.


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Comply with the Act in regard to premiums,

values of assets and liabilities.

Certify the actuarial reports and other returns.

Certify the determination of the mathematical

reserves i.e proportion of the surplus to bereserved and the proportion to be distributed

as bonus.


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Organisation Structure of LIC

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