BackLIC embarks on plan to cover all Indians
Group working on the plan is expected to finalize the blueprint in the next two months for submission to LIC board
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Mumbai: State-owned Life Insurance Corporation of India (LIC) wants every Indian to have life cover by 2020. The country’s largest insurer has formed a team that’s working on the ambitious expansion strategy, which could cost as much as ₹ 2 trillion to execute, two top LIC officials said.
“We will stretch ourselves to any extent to meet the target," said one of the two officials. “There will be new recruitments, the sales force will be expanded, and more branches and satellite offices will be added. There will also be new tie-ups with banks, post offices and others."
The group working on the plan is expected to finalize the blueprint in the next two months for submission to the LIC board. “Fifty members of the strategy implementation group are working on it with seven sub-groups. Many executive directors are part of the group," the second person said.
Both officials did not want to be named because the plan is yet to be formally announced.
India has 24 life insurers with combined assets of at least ₹ 16.18 trillion. LIC is the largest, with at least ₹ 13 trillion in assets.
With at least 300 million policies in force, about 250 million people are covered by LIC in a nation of some 1.2 billion people.
According to a report by global consulting firm McKinsey and Co., life insurance premiums as a percentage of gross domestic product in India is about 4%, much lower than developed market levels of 6-9%. “In several segments of the population, penetration is lower than potential. For example, in urban areas, penetration of life insurance in the mass market is about 65%, and it is considerably less in the low-
income unbanked segment. In rural areas, life insurance penetration in the banked segment is estimated to be about 40%, while it is marginal at best in the unbanked segment," said the report titled India Life Insurance 2012 by McKinsey.
In the June quarter, LIC collected ₹ 14,451 crore in new business premiums. The industry’s new business premium income has been declining over the past three years in the backdrop of stricter regulations and weak market sentiment. In fiscal 2012, LIC’s first-year premium collection fell to ₹ 81,514.49 crore from about ₹ 86,444.72 crore in fiscal 2011.
LIC is targeting a total new business premium collection of around ₹ 1 trillion in the current fiscal, said the first person cited above.
“Keeping all other parameters constant and excluding capital infusion, it may take at least ₹ 2 trillion to grow LIC’s business in line with its target," said the second official.
Ashvin Parekh, a partner and national leader (financial services) at audit and consulting firm Ernst and Young India (E&Y), said LIC can achieve the target, but it has to work on product design.
“LIC has to spend time on products. Merely launching one product after another may not help. There has to be a larger underlining concept behind every product," Parekh said.
The insurance regulator is working on new guidelines for insurance products, which are likely to be announced in the next few weeks. According to Parekh, the new norms may facilitate greater insurance penetration and help LIC, too.
“LIC will also have to stop its overdependence on agency channel and work on multi-channel plans. A complete overhauling is required. LIC must come out of its comfort zone and work on segment-wise products and services," said Parekh.
The state-run insurance company has been on overdrive over the past three years. In 2010, it appointed consulting firm Accenture Plc to suggest ways for speeding up growth. Accenture’s recommendations—on distribution and branding—are being implemented in a phased manner.
The plan to ensure all Indians have insurance coverage is not part of Accenture’s recommendations.
Currently, LIC has around 3,200 branches, including satellite offices. It has 1.28 million agents, and distribution tie-ups with at least six banks.
Between December 2011 and June 2012, the insurer raised its equity stake in 11 state-owned banks, at the behest of the government, to reinforce their capital base.
The branch networks of these banks will come in handy in selling insurance.
LIC bought a large equity stake in Corporation Bank in 2002. At that time, the objective was to use the bank’s branch network to distribute its policies. It holds a 25.49% stake in the bank.
One of the LIC officials cited above said it may use the branch network of cooperative banks as well for the distribution of policies.
Indian banks have at least 93,000 branches and 101,000 ATMs.
“We sold at least 32 million policies last year. We should now be able to sell 80-100 million policies a year," said the first person.
With 300 million policies, LIC has what’s possibly the largest customer base for an insurer in the world, said a top official at ICICI Prudential Life Insurance Co. Ltd.
“The unique identification number and the permanent account number are changing the ecosystem, and this will enable LIC to reach its target," said the official on condition of anonymity. “It will have to expand its distribution network and that will benefit the private sector as well."
Over the past few years, regulatory changes have slowed the growth of the life insurance industry. The industry’s new business premium income declined to ₹ 1.14 trillion in 2012 from ₹ 1.25 trillion in 2011. Experts say the industry is poised for consolidation.
If LIC succeeds in achieving even close to what it is targeting, the private sector will react by consolidating businesses to compete, said Parekh of E&Y.
In line with its plan, on 1 September, LIC announced the launch of a micro-insurance policy meant for the financially weaker sections. It plans to sell insurance cover to people below the poverty line under social security group schemes such as JanaShree Bima Yojana and Aam Admi Bima Yojana. It will offer free add-on scholarship benefit plans for the children of those covered under such schemes.
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