For many people, the pandemic came as a rude reminder about the need to be prepared for tough times. This may play a role in improving insurance penetration in India, says M.R. Kumar, chairman of India’s largest insurer, Life Insurance Corporation of India. In an exclusive interview, he also talks about LIC’s acquisition of IDBI Bank and its IPO plans. Excerpts:
Q| Covid-19 caused disruption across industries. For the insurance sector, however, it perhaps has been a catalyst in raising awareness about the need for being insured.
A| In spite of the collective efforts of insurers, regulators and the government, insurance awareness is still low in India, which is reflected in the low insurance penetration rate of 2.74 per cent. The life insurance industry faced the heat of the pandemic during the period of lockdown, which impacted its performance initially, but, at the same time, the pandemic has thrown light on the importance of life insurance and health insurance.
People have begun to understand the importance of life insurance and health insurance in financial planning amid growing uncertainties in income and medical costs. The awareness that has been generated in the aftermath of the pandemic has proved to be a growth catalyst in the industry, cutting across the product basket.
Q| What is LIC doing to deepen insurance penetration and what more needs to be done across the insurance industry to increase awareness?
A| Financial awareness about life insurance among households is the key factor which leads to the deepening of the life insurance market. Even though awareness about life insurance has increased among common people thanks to the collective effort of life insurers, the government and the regulatory authority, we have a long way to go. The pandemic has amplified the need of life insurance. LIC has chalked out a three-step process to increase insurance penetration—increasing the awareness about life insurance through digital, print and social media; expanding distribution reach through innovative interventions as per the demands of the market; and offering a suitable product based on customer segmentation. We feel the synergic effect of the three will help to increase insurance penetration in India.
Q| It has been five months since the country began unlocking.
Have things returned to pre-Covid levels as far as LIC’s business is concerned?
A| An increase in economic activity since the unlock process started in June has resulted in an uptick in the business performance of LIC. Business began to return to normalcy as we started to use digital tools and new ways of prospecting and serving clients, keeping in mind the social distancing norms. As on October 31, we have collected a total first year premium of Rs1,03,566.08 crore as compared to Rs1,01,402.37 crore last year, at a growth rate of 2.14 per cent.
The number of policies is still showing a negative variation as compared to last year. As the unlock process is widened further, resulting in more economic activities, and with the probability of a vaccine in the near term, we expect the life insurance business to continue to grow steadily over the rest of the current fiscal. And backed by our digital innovations and marketing initiatives, we are confident of returning to double-digit growth in premium by the end of the fiscal.
Q| How will Covid-19 change LIC’s strategy and operations going ahead?
A| The entire ecosystem is changing to digital mode since the pandemic started, and it will grow further in coming years. We have provided a digital interface to our agents to complete the proposals from their home with zero contact with customers. The module is integrated with our branch system so that the records get escalated seamlessly to the branch with which the agent is attached. We have arranged for online training for our field force so that their skills get updated. We feel that, with the involvement of more agents, sustainable growth in life insurance is possible and it will continue to be a key distribution channel. However, with the ecosystem changing towards digital mode after the pandemic, agents, too, will have to equip themselves to sync with the demands of time, and we have provided them the digital platform for the purpose.
Q| Interest rates have come down sharply this year. What kind of impact has this had on LIC’s investments in debt markets? Will it have any impact on the returns that are offered on savings and investment products?
A| We are a long-term investor and our incremental investments are small as compared to total investments at any point of time. Any upturn or downturn in the debt market does not have any significant impact on our overall returns. Also, as a matter of strategy, we use a mix of debt returns and profit booking in equity to ensure returns to our customers as per the market conditions.
Q| The budget this year proposed lower tax rates for salaried professionals. But those opting for it are not eligible for tax deductions, including insurance premiums. Will it be a setback for the insurance industry?
A| Covid-19 has made people aware of the importance of life insurance and it may be a turning point in life insurance in India where it is converted to a nudge product from a push product. Post pandemic, people may buy life insurance as an integral part of their financial planning. However, it is also a matter of fact that in order to reduce the social security burden on the government exchequer, it is essential that citizens opt for life and health insurance as per their personal requirements, and for this purpose, some sort of incentive in the form of tax break is necessary.
Q| LIC acquired a majority stake in IDBI Bank in 2019. How has this panned out for the company?
A| LIC’s stake in IDBI Bank has panned out along expected lines so far. IDBI Bank has registered profits in the first and second quarters of FY 20-21. As a prudent measure, however, the bank has made more provisions than mandated by the RBI to manage Covid-related stress on assets. The impact of any, and the quantum thereof, are likely to be known only when the bank closes its books at the end of the financial year. The bank is adequately capitalised at the present moment. LIC is bound by the regulatory guidelines and directives issued by RBI and IRDAI at the time of allowing LIC to acquire majority stake in IDBI Bank.
Q| The government has announced its intent to list LIC on stock exchanges. What kind of impact is this going to have on LIC, considering that it will then be under a lot more scrutiny?
A| DIPAM [Department of Investment and Public Asset Management] appointed two pre-transaction advisers—Deloitte and SBI CAPS—on August 27, 2020 for assisting the government and LIC in preparing for the IPO. Further, RFP [request for proposal] has been floated for appointment of an actuarial firm for determining the embedded value of LIC.
Q| Given how intertwined the financial services sector is, is there a case for a common financial
A| Regulations are important to ensure that market participants are acting properly. Keeping in mind the intertwined financial service sector today, it may seem a good idea to have a common financial regulator. However, we have a long road to go before we think of having such a regulator, as the customers’ expectations and needs are quite diverse.