By Dechen Bhutia
The Life Insurance Corporation of India, popularly known as LIC, was established on September 1, 1956 by the then Jawaharlal Nehru Government by nationalizing the life insurance business in India, and by amalgamating around 245 life insurance companies that existed at that point in time in India, through LIC Act 1956. One such life insurance company was Bhaskar Insurance Company headquartered in Guwahati, Assam. A primary reason given by the Union Government for the move to nationalize the life insurance industry was the need for long term funds required for the development and economic growth of the country. After over 65 years of existence of LIC, few would actually doubt about it fulfilling its obligation in this respect. In a span of around two to three decades after its birth, LIC became a household name in India, thanks largely to its spirited army of agents. Many times, the agents themselves became members of extended families who could be trusted and consulted, for an array of personal and family issues like those of marriage, match-making, investments, travel, etc.
After the insurance sector was re-opened for private players in 2000, LIC evolved to become an even more trusted organization, taking on multinational companies head-on in competition. There are few organizations worth their salt that have stood their ground as public sector undertaking and fully government owned, till date. After over two decades of opening up of the insurance sector, as mentioned above, LIC is the market leader in life business in India with a market share of 74.58% in policies as of March 31, 2021 (source: Insurance Regulatory and Development Authority of India, IRDAI). In the last two months of the previous financial year 2021-22, LIC outpaced its private peers with a wide margin to improve its market share at the end of the financial year (source: IRDAI website).
One of the strengths of LIC is because people trust its claim settlements, which remains one of the best both in terms of perception and reality. In 2020-21 financial year, LIC settled 229.15 lakh claims, and the total payout amounted to a whooping INR 1, 47, 754 crores (source: LIC website), over a period of just one year. One of its strengths is its distribution network, with around 3,800 offices and 42,000 franchisee offices, in the form of Life Plus, Premium Points, etc. as on 31st March 2021. This is besides tie ups with around 70 banks, including foreign ones, spanning the length and breadth of the country. Additionally, LIC’s mainstay are it marketing intermediaries or Agents who numbered 13.53 lakhs as of 31st March 2021. Agents are the pillars of the stupendous growth of LIC. This is a dedicated group. and has remained loyal to LIC. Even after over two decades of opening up of the insurance industry in India, LIC’s nearest rival in agency strength, ICICI-Prudence has around 2 lakh agents.
LIC is also a premier global conglomerate with presence in fourteen countries that include the United Kingdom, Qatar, Oman, Singapore, Bangladesh, Mauritius and Sri Lanka. Its notional share from First Premium Income from foreign operations stand at 3.19% as on 31st March, 2021. As of the same day, LIC’s asset was worth INR 38, 04,610 crores, with a life fund of INR 34, 36,686 (source: LIC’s press release). As per the survey report released by Brand Finance Insurance 100, LIC ranked the 3rd largest and 10th most valuable brand in the entire world. This is not a mean achievement by a public sector entity in India.
LIC’s Golden Jubilee Foundation Trust (LIC GJF), the philanthropic and Corporate Social Responsibility (CSR) arm of LIC, was established in 2006, as part of its Golden Jubilee Celebrations. The Foundation contributes towards poverty relief and distress, advancement of education, medical relief and provision for any other objects of general public utility. The Foundation has supported projects ranging from construction of hospitals, school buildings and classrooms, libraries, computer centers, old age homes, hostel buildings for children in tribal areas, vocational training centers for differently abled persons, empowerment of women for livelihood generation so as to provide infrastructural facilities to needy persons in different pockets of the country. etc.
LIC’s Golden Jubilee Scholarship Scheme is a unique example of Community Development activity wherein Scholarships are awarded to meritorious students from economically weaker sections of society, to provide them with better opportunities for higher education. LIC also ventured into auxiliary financial services such as LIC Credit Cards, LIC Mutual Funds, Pension Funds, LIC Housing Finance, etc. Accolades and awards are part of LIC’s regular routine.
In her budget speech, 2020-21, Finance Minister, Nirmala Sitharaman, announced disinvestment of LIC’s shares to the public. After many pauses, stops, Covid-19 crisis, and market turmoil, the actual divestment of 3.5% equity shares started on May 2, 2022. The anchor investor portion was fully subscribed on day one itself. Deliberations are ongoing about LIC’s share sale. There is a lot of media hype on this. LIC also upped the ante for popularizing the Initial Public Offering (IPO) through its field force as also by massive messaging splashed all over the media. There was speculation of its market valuation being touted to reach INR 14 lakh crore, making it, arguably the largest company in India by market valuation. However, the Russia-Ukraine crisis put paid to all such speculations as the Indian equity markets corrected from its earlier highs. Moreover, many foreign institutional investors were forced to withdraw investments in India to re-deploy these in other markets, including the US market, primarily because of the Ukraine-Russia war as also because of the hawkish stand of the US Federal Reserve. This compelled the Union Government to downsize the offer and lower the market valuation of LIC in accordance with the present global political-economic crisis. Even at these scaled down levels, this IPO of LIC would be the largest ever in the Indian bourses, and the world’s fifth largest IPO for 2022.
There are several advantages in being an LIC customer and equity shareholder. Equity market is not everyone’s cup of tea because of the risks and complexities involved. However, medium to long term prospects of LIC as a listed company appear decent. LIC would be forced to change track to increase the value of its shares and its shareholders. Certain amendments have also been made in the LIC Act 1956 to increase the surplus share of its shareholders over a period of two to three years to 10%, from the current levels of 5%. The increase in non-participating portfolio of products would also likely enhance returns to shareholders. Being a market leader, LIC can dictate terms to the market to its own advantage.However, there are also a few risks. The Union Government may intervene time and again, as it had done on numerous occasions earlier, to compel LIC to bail itself out or to lend at below market rates. Bureaucratic functioning of LIC may affect its efficiency. However, overall, LIC seems to be in safe hands as of now. LIC’s presence in online and digital marketing as also in the banc-assurance channel seems limited.
The management has indicated corrections in these weaknesses making LIC an attractive value proposition to invest for medium to long term. There can hardly be any less risky proposition in the market. Being a LIC policyholder is a pride for many; being a shareholder may be the icing on the cake.