LIC’s growth poor, lags private rivals before IPO

During the financial year so far, all top private life insurers have increased their new business premiums by 25 per cent faster than LIC-SBI Life Insurance. 22,613.4 crore; ICICI Prudential Life Insurance from 18% to 12,844.8 crore; Maximum life cover from 16% 6,510.75 crore; and HDFC Life Insurance by 22.52% 21,136.7 crores.

The latest figures from the Insurance Regulatory and Development Authority of India (IRDAI) highlight one of the worst years for LIC, which is soon to go public.

The insurer’s struggle to grow the new business means that its ability to generate profit after listing to attract enough investors will be limited, even though the government may well meet its objective of raising. 65,000 crore by selling 5% stake in the company.

“This may not bode well for the government’s objective of attracting investors for the upcoming IPO of LIC. As SBI Life, HDFC Life and ICICI Prudential Life continue to grow in their new business, investors have better performing life insurer stocks to invest in from the listed position. One would question why LIC’s stock should have done well after the IPO, despite it failing to grow the core business,” the leader of insurance business at a large foreign consultancy firm said on condition of anonymity.

Unlike other insurance companies, LIC has notably failed to grow its March-quarter business.

During the period January-February, LIC acquired new business of 30,425 crore as compared to 40,902 crore in the December quarter, 49,512 crore in the September quarter and 35,601 crore in the June quarter.

Though the March figures are yet to come, it is an unusual trend for LIC as life insurers generally see better sales in the March quarter, with many customers discontinuing insurance policies to save tax .

In FY21, LIC reported new business in the March quarter 54,170 crore, which was higher than each of the previous three quarters.

In FY20 also, despite the nationwide lockdown, LIC’s new business managed to earn premium 40,942 crore in the March quarter and 1.84 trillion for the full fiscal.

This fiscal year, however, the insurer has clearly lagged behind, and in order to post positive year-on-year growth for this March quarter or the entire fiscal year, it needs to earn more. 24,000 crore in March alone, a daunting feat.

Compared to private peers, LIC’s network is larger and older, and is generally expected to outperform rivals in the March quarter.

Instead, it is struggling to contain the loss of market share.

Private insurers have steadily eroded LIC’s market share over the years, while the vast network of agents of state-run insurance companies are now busy persuading policyholders to invest in LIC’s IPOs.

The setback to LIC has come from two major segments – individual single premium policies and group non-single premium products.

According to IRDAI, LIC’s new business has fallen by 21% during this financial year. 20,787 crore in individual single premium segment and up by 49.6% to 2,672 crore in the group non-single premium segment.

The Group Single Premium and Individual Non-Single Premium segments have registered marginal growth during this financial year.

LIC’s individual non-single premium segment grew by barely 8.8% to . It is done 24,514 crore in the current financial year.

On the other hand, private life insurance companies have grown their individual single premium business by 27 percent. 14,709 crore, Group non-single premium business up 40% to 356.43 crore and Individual non-single premium segment up by 24% 44,705 crore in this financial year.

LIC’s segment-wise trade deficit highlights the insurer’s struggle to acquire new customers and retain existing customers, mainly in the retail segment, reducing its retail market share.

With its way of doing business for decades, LIC may continue to lose its stronghold in the retail life segment, especially in the high-ticket space.

With bank channels becoming increasingly important for savings product distribution and digital channels becoming increasingly important for retail security, LIC has to grow due to its heavy reliance on agency-led distribution channels, lack of adequate bancassurance business and failure to grow. In case of turbulent times may have to be faced. Changing itself enough to adapt to the rapid digitization of consumer-centric processes.