India’s largest life insurance company, Life Insurance Corporation (LIC), was birthed and grew under state protectionism but its best years in the business coincided with the opening up of the Indian economy in 1991.
The latest annual report of the Life Insurance Corporation lists the names and designations of its key officials over 10 pages. But when it comes to giving details of companies in which it holds shares worth about ₹470,000 crore, India’s largest life insurer is reluctant to share information. Even to its millions of policyholders, LIC’s equity portfolio—bigger than that of any mutual fund in India—is largely an unknown.
Contradictions run rife through the 66-year-old LIC, which is looking to make India’s biggest share listing. LIC seeks a premium for size but discounts transparency. LIC exists to service policyholders but occasionally channels their savings for purposes that yield sub-optimal returns while servicing objectives of its owner, the central government. LIC was birthed and grew under state protectionism, but its best years coincided with the government lifting the shroud over the economy in 1991.
LIC’s history can be divided into four phases. The first phase is its formation and formative years, which were framed by growing defaults in the life insurance industry and a policy orientation that assigned a central role to the state. Thus, in 1956, the government nationalized 245 entities involved in life insurance, and created LIC through a Parliamentary Act. LIC’s objectives was, in its own words, “of spreading life insurance much more widely and in particular to rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost."
While its stated objective was to provide life insurance, it packaged this as an investment, as life insurers do. At a time when Indian households had few investment options beyond bank deposits and small savings schemes, LIC became a verb. Its new business, in terms of insurance cover assured, grew from ₹200 crore in 1957 to cross ₹1,000 crore in 1969-70. This pace then slowed, and LIC took a whole decade to double this amount.
In the eighties, an internal reorganisation shaped its second phase. The centerpiece of this exercise was to have a branch office in each district headquarter. Servicing functions were transferred to these branches and they were made accounting units. This gave them greater autonomy and a framework to pursue growth. In 1985-86, LIC crossed ₹7,000 crore in new business.
This expansion in geographical footprint set it up for its third phase, which coincided with a seminal moment in Indian’s economic history. In 1991, India started opening its economy in a big way. Two things happened. One, India’s economic growth shifted to a higher trajectory since the 1980s, raising disposable incomes significantly by the early 90s. Some of the resultant surpluses found their way into hard-selling life insurance products. Two, in 2000, the government allowed the private sector back into the life insurance business.
The entry of private players expanded the life insurance sector. In nine of the first 10 years, total premiums collected by life insurers grew in double-digits, shows data from the Insurance Regulatory and Development Authority of India (IRDAI), the sector regulator. During this period, though LIC trailed overall sector growth and its market share fell to 70%, it rode an expanding market. But as the industry matures and growth rates stabilise, growth of private players is beginning to come at LIC’s expense.
This is its current and fourth phase. In each of the five years till 2018-19, LIC trailed industry growth. In a shifting industry, other strengths of LIC are also turning against it. A case in point is individual agents, once the sales mainstay. As of 31 March 2019, LIC had about 54% of 2.2 million individual agents in the industry. However, the driver of sales has shifted from individual agents to company officials and banks. In 2006-07, policies sold by individual agents accounted for 64% of new lives insured that year. By 2018-19, this had dropped to just 11%.
LIC is the big loser in this. The average policies sold by an individual agent of LIC has declined from 29 in 2013-14 to 18 in 2018-19. By comparison, private players average 2-5 policies sold per individual agent, relying more on the banking channel and direct sales.
By making it more accountable, a listing can address some of the fault lines in LIC. As of March 2020, LIC was managing about ₹30 trillion of assets—the pre-covid size of the central budget in 2020-21. About 15% of this was invested in stocks and mutual funds, where the scope for discretion is the most.
Investors will not take kindly to LIC being forced to support asset prices of state-owned enterprises or purchase poor government assets. As it stands at the cusp of another phase in its momentous but chequered history, its path ahead will be influenced by how it manages the contradictions inherent to it.
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