Defending unit-linked insurance policies (Ulips) as a savings tool and not just investment, T S Vijayan, the 56-year-old chairman of Life Insurance Corporation of India (LIC), has said these are legitimate insurance products. Vijayan, who joined LIC as a direct recruit in 1977 and climbed the ranks to become the youngest chairman of the country’s largest financial institution, said in an interview with Sneha Shah and Rajendra M Palande that the public sector life insurer will end the year 2009-10 with over Rs 1,100,000 crore of assets. Excerpts:
You have hired Accenture to carry out a restructuring exercise for LIC. What will it predominantly involve?
We have been hiring consultants periodically to carry out different streamlining exercises. I do not have more to share at this moment.
You have hired Accenture to carry out a restructuring exercise for LIC. What will it predominantly involve?
We have been hiring consultants periodically to carry out different streamlining exercises. I do not have more to share at this moment.
Is there some concern about the huge dependence on the agency force alone?
The 1.3 million agency force is our strength because these agents are present in every part of the country. They are the channel we would depend on in the future also. Efforts are on to professionalise them more and to change any reporting structure that needs to be changed.
Are you also looking at an image makeover because LIC is perceived as a typical government organisation?
LIC is a brand in itself. It is government-owned and we don’t want to de-alienate from that tag. We certainly have to keep pace with the modern times and renew ourselves constantly. But we don’t want to change our brand image because LIC has been successful in standing tall against all the big names, and hence LIC will remain LIC.
LIC has been driving the growth for life insurance industry this year. What do you attribute this to?
That simply means LIC is the most preferred insurer. It is like this, once the organisation matures, maintaining a 100 per cent growth is not possible and hence, the private life insurers who, until now, have been growing at 100 per cent might not continue to see the same results. While we have been consistently increasing our productivity and hence, although we have fewer number of offices and agents compared with the rest of the industry put together, we have been able to clock good performance.
While you keep insuring more and more number of lives by selling more policies, higher lapsation has always been an area of concern for LIC. Lapsation is a worldwide phenomenon. Whenever a person has additional responsibilities and financial burden, the first axe falls on life insurance premium. People either discontinue the policy or reduce the premium. That can be seen as lapsations, but our conservation ratio is 96 per cent, which is excellent by industry standards.
Close to 7.3 million policies worth Rs 52,926 crore lapsed in 2008-09. What are you doing on that front to check on the high lapsations?
We have recently started two initiatives to get the lapsed policies renewed within five years of lapsation. We have allowed people to pay the arrears in easy instalments along with some interest. Our internal research shows that people find it difficult to pay the money in lumpsum and hence, allowing payments in parts will help.
Is misselling also a reason for higher lapsations?
The Irda has given an option to the customer to return a policy within 15 days of getting the policy document. If a customer thinks that the policy doesn’t meet the promised features, the policy can be returned and money can be reimbursed. In case where some serious misselling happens, we take stern action against the concerned agents. Most of our agents have been with LIC for generations and they will never sell something and make people surrender the policy and buy another policy after two-three years of a term. If an old policy is in lapsed condition, we allow a new policy only after lapsed policy is renewed.
What has been the total premium income this year?
We managed to mop up Rs 129,000 crore up to January. Our target is to collect around Rs 176,000 crore by the end of March this year.
What is the ratio of Ulips in new premium income?
Ulips are a recent phenomenon (for LIC). They account for 60 per cent of our new premium income. We offer a healthy mix of products to our customers. This has helped us tide over bad times of last year.
What is your take on the recent Sebi notices to all the life insurers for their Ulip products?
We have not got any such notice. But as far as Ulip goes, they are legitimateinsurance products as there is a risk cover in it. Ulips are being sold in allgeographies around the world as insurance products. Beyond that, I cannot really comment.
But is the line between MFs and Ulips really blurring?
Ulips that are approved by Irda have to go through many processes. There is ahuge solvency margin requirement that MFs don’t have. The sale process forUlips is also regulated. The literature is calibrated. There is a lock-in period ofthree years, which is not the case in MFs.
What have been LIC’s investments this year? The requirement for infrastructure is huge. What will be your investments in it be?
We have invested Rs 160,000 crore so far. The target is to touch Rs 200,000 crore as our income and premiums have been going up. Of the total, Rs 50,000 crore has been invested in equity markets. There are prudential norms that mandate minimum 15 per cent investment in infrastructure and we will invest within those guidelines.
What is your market outlook in terms of opportunity given that so many FPOs, IPOs and disinvestment options are available? Is there any concern on valuations?
There’s a huge opportunity and we will definitely invest. It makes sense for us to pick up stake in bulk than picking up in bits and pieces. Many of the companies are solid ones with strong fundamentals and hence complementary to our investment philosophy.
The 1.3 million agency force is our strength because these agents are present in every part of the country. They are the channel we would depend on in the future also. Efforts are on to professionalise them more and to change any reporting structure that needs to be changed.
Are you also looking at an image makeover because LIC is perceived as a typical government organisation?
LIC is a brand in itself. It is government-owned and we don’t want to de-alienate from that tag. We certainly have to keep pace with the modern times and renew ourselves constantly. But we don’t want to change our brand image because LIC has been successful in standing tall against all the big names, and hence LIC will remain LIC.
LIC has been driving the growth for life insurance industry this year. What do you attribute this to?
That simply means LIC is the most preferred insurer. It is like this, once the organisation matures, maintaining a 100 per cent growth is not possible and hence, the private life insurers who, until now, have been growing at 100 per cent might not continue to see the same results. While we have been consistently increasing our productivity and hence, although we have fewer number of offices and agents compared with the rest of the industry put together, we have been able to clock good performance.
While you keep insuring more and more number of lives by selling more policies, higher lapsation has always been an area of concern for LIC. Lapsation is a worldwide phenomenon. Whenever a person has additional responsibilities and financial burden, the first axe falls on life insurance premium. People either discontinue the policy or reduce the premium. That can be seen as lapsations, but our conservation ratio is 96 per cent, which is excellent by industry standards.
Close to 7.3 million policies worth Rs 52,926 crore lapsed in 2008-09. What are you doing on that front to check on the high lapsations?
We have recently started two initiatives to get the lapsed policies renewed within five years of lapsation. We have allowed people to pay the arrears in easy instalments along with some interest. Our internal research shows that people find it difficult to pay the money in lumpsum and hence, allowing payments in parts will help.
Is misselling also a reason for higher lapsations?
The Irda has given an option to the customer to return a policy within 15 days of getting the policy document. If a customer thinks that the policy doesn’t meet the promised features, the policy can be returned and money can be reimbursed. In case where some serious misselling happens, we take stern action against the concerned agents. Most of our agents have been with LIC for generations and they will never sell something and make people surrender the policy and buy another policy after two-three years of a term. If an old policy is in lapsed condition, we allow a new policy only after lapsed policy is renewed.
What has been the total premium income this year?
We managed to mop up Rs 129,000 crore up to January. Our target is to collect around Rs 176,000 crore by the end of March this year.
What is the ratio of Ulips in new premium income?
Ulips are a recent phenomenon (for LIC). They account for 60 per cent of our new premium income. We offer a healthy mix of products to our customers. This has helped us tide over bad times of last year.
What is your take on the recent Sebi notices to all the life insurers for their Ulip products?
We have not got any such notice. But as far as Ulip goes, they are legitimateinsurance products as there is a risk cover in it. Ulips are being sold in allgeographies around the world as insurance products. Beyond that, I cannot really comment.
But is the line between MFs and Ulips really blurring?
Ulips that are approved by Irda have to go through many processes. There is ahuge solvency margin requirement that MFs don’t have. The sale process forUlips is also regulated. The literature is calibrated. There is a lock-in period ofthree years, which is not the case in MFs.
What have been LIC’s investments this year? The requirement for infrastructure is huge. What will be your investments in it be?
We have invested Rs 160,000 crore so far. The target is to touch Rs 200,000 crore as our income and premiums have been going up. Of the total, Rs 50,000 crore has been invested in equity markets. There are prudential norms that mandate minimum 15 per cent investment in infrastructure and we will invest within those guidelines.
What is your market outlook in terms of opportunity given that so many FPOs, IPOs and disinvestment options are available? Is there any concern on valuations?
There’s a huge opportunity and we will definitely invest. It makes sense for us to pick up stake in bulk than picking up in bits and pieces. Many of the companies are solid ones with strong fundamentals and hence complementary to our investment philosophy.
Courtesy: mydigitalfc.com
