Life Insurance Corporation (LIC), which is set to get listed following the government’s decision to float an initial public offering (IPO), is expected to be the most valuable company in the country. In an interview with TOI, LIC chairman M R Kumar speaks of how the corporation keeps reinventing itself to remain relevant to every generation...
The pandemic has cut incomes, but has also increased savings. How has the behaviour been with insurance?
What we found is that the impact and need for insurance have been felt and people have started to revive policies as well. There are rare instances of self-employed who had taken high-value policies and have held back on premium. But most people who missed buying in the last week of March 2020 have subsequently purchased insurance. There has been a 23.9% contraction in the first-quarter GDP and life insurance correlates with economic activity. However, in percentage terms, I expect the share of life insurance in household savings to rise. As on date, we are showing a small growth in premium. For the year, we are 27% down in the number of policies, but seeing a 2% growth in premium. In the first week of September, we have seen 37% growth in the number and 90% in premium compared to the same period last year. Our market share in August has improved to 71.3% in policies and 73% in premium.
What impact is the Covid-19 pandemic having on returns for policyholders?
Interest rates have gown down in the last one year and incremental investments are happening at lower levels. But at the same time, there are opportunities in equity where we have generated good profits. As on date, we have made a profit of Rs 12,000 crore. Whenever there were major dips, we bought. We bought a lot in April and May and booked profits after July. While yields on government securities have come down, incremental investments do not impact yield in the short to medium term as the corporation has a large asset base.
How has LIC added to its digital capabilities during the lockdown?
When lockdown happened, one immediate challenge was continuing investments. We had 10,000 virtual private network (VPN) licences, which we never used. The first thing we used the VPN was for was our market operations. Therefore, there was no break in our market operations. We always had online payment, we have added every instrument possible. Now 73% of premiums are coming out of alternate channels, which include chief life insurance advisers who are authorised to collect the premium. Recently, we launched a special mobile app for uploading all the documents that are required for any type of service. Hence, customers need not visit any of our branches for such type of requirements. As part of our objective of anywhere services, we have many projects in the pipeline and we would like to avail the facility of Aadhaar-based services from UIDAI to provide an enhanced and paperless service experience for our customers.
LIC already has a system in place in establishing an agency channel with online recruitment. Keeping in mind, the current scenario, we are organising online training to update the sales force about the new initiatives of LIC. The digital methods of completing a new sale, called the end-to-end process, were already operational in LIC through our senior business associates. Keeping in mind the current pandemic and related social-distancing norms, we worked proactively by digitising the agency channel where the entire process from proposal registration to completion of the proposal will be done without a physical interface
There is a lot of uncertainty — both over life and income. How are you segmenting the market?
Our customer base consists of people from varying demographics cutting across age groups. Nearly 50% of our policies are bought by millennials, which is an indicator of how LIC connects seamlessly with the new generation. Those above 40 years contributed more than 50% to total individual first-year premium in FY20, which has shot up to nearly 60% in Q1 of the current fiscal. In the present context, insurance protection plans and annuity are preferred avenues for customers. Also, people are getting more conscious about health insurance coverage. Millennials like to separate purchase of protection and investment, which is why we have positioned our unit-linked product as an SIIP (systematic investment insurance plan) as they are familiar with SIP.
Have job losses led to an increase in application to agency licences?
Agency as a career in LIC is a lucrative option for people opting out for additional income. It not only takes care of current earnings but also guarantees earnings for the future. Life insurance in India is mainly agency driven and will continue to be agency driven even in the digital era, keeping in mind the digitisation of agency channels by LIC. Agents contribute 62.3% of the individual new business premium of the industry as a whole and 95.8% of LIC individual new business premium. With the life insurance business expected to grow by 12-15% in the coming years, LIC will play a crucial role in creating huge employment in the agency channel. It is worthwhile to note that despite the nationwide lockdown and subsequent unlock phases; LIC has a net addition of 60,771 agents to its force as on August 31. We have a total of 12.7 lakh agents working with us and expect the number to grow steadily.
Are you happy with the progress that IDBI Bank has made? What kind of relationship do you see between IDBI Bank and LIC Housing Finance in the future?
We are. They have shown a profit for two successive quarters. They have also emerged as our number one bancassurance partner. If they come out of RBI’s prompt corrective action (PCA) it will make a difference to their banking operations. The RBI has approved our investment, subject to the condition that we should bring down our stake in IDBI Bank in 12 years and also that the bank or LIC has to cease housing finance. We are still under discussions on how to do it. At the point when we have to bring down our stake, we do not want either company to face a problem. How can we ensure that both continue this is what we are trying figure out. One of the options is the HDFC-HDFC Bank model (where bank distributes home loans for housing finance company). Once the LIC IPO happens and IDBI Bank comes out of PCA, we want to continue to have a partnership for distribution, but we would like to give them the independence to act on their own.
What kind of appetite does LIC have for government securities this year?
We have a huge appetite for government securities as policyholder money is for the long term. Overall, we hold more than 20% of all outstanding government securities. The cash flow was muted at the beginning of the financial year, now it has been normalised. This year, we have invested Rs 1.37 lakh crore against Rs 1.15 lakh crore. Including state development loans, the total is 1.71 lakh crore. We will continue to invest in G-secs and we are also getting into high-ticket NHAI, power finance corporation bonds. Also, we will continue to invest in equity.
Have the pre-IPO preparations got hit because of lockdown? Has LIC got its embedded value? How much time would be required to file for IPO?
The IPO is handled by the department of investment and public asset management (Dipam) and they have initiated the process by appointing transaction advisers — Deloitte and SBI Caps. We have a full team in place headed by an MD and supported by the company secretary. The second RFP would be for an actuarial firm, which will help us to determine the insurance embedded value. Once that is in place, the valuation work will start. The department of financial services is separately working on what legal amendments are required. I cannot put a time frame on when we would be IPO-ready — we would be hoping to do it as soon as the embedded value is calculated, that would take time as we have a huge database.