The Initial Public Offer (IPO) of Life Insurance Corporation of India (LIC) is expected to be over Rs 50,000 crore. Before the IPO of LIC, the data related to its revenue and profit growth will be closely monitored by the investors and especially the retail investors. The figures released for the March quarter of the government insurance company are not comforting. LIC’s new business premium has grown at a slower pace than its rivals. Moneycontrol tried to understand this by talking to Piyush Nagda, Head of Investment Products at Prabhudas Lilladher.
LIC’s new business premium has grown at a rate of 0.24 per cent in the first 11 months of FY 2022, compared to 25 per cent for its rival private companies. Why do you think LIC’s new business premium has increased so slowly?
Insurance is a seasonal business, which sees maximum growth in only 3 months (January, February and March). LIC’s new business premium has grown at a slow pace for 11 months, but if you look at the figures for February 2020, you will find that its new business premium has increased by 35 percent this month and it has outperformed its rivals by a huge margin. We expect this to continue in March as well. However, it will still lag behind private companies in this financial year.
Product mix, channel mix and average ticket size can be seen as the main reasons behind the slow growth of new business premium of LIC.
LIC relies heavily on non-participating savings products, while private insurers lay more emphasis on participating products linked to market returns and ULIPs (Unit-Linked Insurance Plans). Another reason is that LIC is heavily dependent on individual agents for the sale of its products, whereas private companies insist on selling through bancassurance and corporate agents. Innovative products and aggressive distribution channels help private companies achieve higher average ticket sizes.
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Digital platforms are becoming very popular these days. In such a situation, do you think that the distribution system of LIC is coming in the way of its growth?
Life insurance is something that needs to motivate and persuade people. For this you have to explain personally. Here LIC has a whole army of its agents, who have better reach in smaller towns, towns and rural areas.
However, the acceptance of digital channels is also increasing rapidly and online insurance platforms have made insurance buying easy, transparent and knowledge based. In future, the business will be inclined towards insurance players with digital distribution and servicing capability.
How do you think LIC has adapted itself to the fintech revolution?
LIC is increasingly accepting the challenges posed by fintech companies and is working hard to digitize its business. Its data and backend processes have been digitized and are well handled on the portal. However, on the front, there is a lot to do with a user-friendly mobile app that is unmatched in terms of marketing, sales and user experience.
Is this 11-month data any indication about the future growth of LIC as the March quarter figures also look weak so far?
The March quarter has not been good for the entire life insurance industry. However, overall slow growth can hurt LIC. Its large size is its main strength at the moment, but if it does not change its product mix and channel mix, then that strength will become its weakness.
What will be the impact of these figures on LIC’s IPO and can it affect the sentiments of investors?
This will hurt investor sentiments as slowdown in growth is not seen as a good sign (as far as markets are concerned). This could especially impact retail investors looking for listing gains. This will have less impact on institutional investors who are betting on long-term growth and can wait for the turnaround in this huge company.
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