LIC keeps the economy healthy

LIC: The big daddy

Source: Business Today

• LIC is the industry leader, with a 69 per cent market share in 2010/11
• Compared to 2.6 per cent annual growth in fi rst-year premiums for private insurers, LIC recorded growth of nearly 22 per cent in 2010/11
• LIC has the largest sales force of 1.34 million advisors, as of March 2010
• LIC's 13.1 per cent expense ratio (including advisor commission) is lowest in the world
• With total investments of Rs 10.96 trillion, LIC was India's largest institutional investor as of March 2010

"The guarantee does not come free"

As a home loan officer with a private sector bank, Yatindra Pathak says he has often heard people say: "Mere pass ICICI ka hi LIC hai" (I have ICICI's LIC). LIC, or the Life Insurance Corporation of India, is practically synonymous with insurance in the country. And with good reason: despite 22 private entrants into the industry since it was liberalised in 2000, LIC has the lion's share.

At Rs 86,445 crore, it notched up an overwhelming 69 per cent share of first premiums in 2010/11 - nearly 22 per cent more than in the previous year. By contrast, private insurers garnered a cumulative Rs 39,831 crore, which worked out to an annual growth of 2.56 per cent.

The sailing has not been all smooth, though. In 2009/10, 75 per cent of LIC's new business came through unit-linked insurance policies, or ULIPs. But regulators questioned the governance of these products. The Securities Exchange Board of India wanted to oversee them because of their high investment component, and the Insurance Regulatory and Development Authority wanted to continue overseeing them as they did, after all, provide insurance.

The insurance regulator framed stringent norms for ULIPs. "The entire sales focus has now moved to non-ULIP products," says an LIC official who asked not to be named. With lower advisor commissions and ULIP sales, new business premiums for the industry as a whole shrank 12 per cent in April-May 2011 compared to the previous year. Business dropped eight per cent for LIC, and 23 per cent for private insurers.

LIC's nationwide sales force of 1.34 million advisors is just one of its strengths. "The government guarantee gives it the edge on private players," says the head of a private insurer. Of course, the guarantee does not come free. LIC is among India's largest institutional investors, and the biggest participant in state and public sector bond issues. Its i nvestments in 2009/10 were Rs 10.96 trillion, of which roughly 92 per cent was in securities, and 7.75 per cent was in loans. In 2009/10, LIC paid Rs  3,625 crore in taxes, and another Rs 1,030 crore was the government's five per cent share of LIC's life fund valuation surplus. So LIC not only insures lives, but also helps keep the economy healthy.