LIC's policy issuance was hit adversely due to Covid pandemic

Covid has impacted the initial public offering (IPO)-bound Life Insurance Corporation’s (LIC’s) business adversely. The total number of individual and group policies (in terms of lives insured) issued by it dropped substantially — from 62.43 million in FY20 to 52.54 million in FY21, a decline of 15.84 per cent. In FY19, the life insurance giant had issued 75 million policies.  

“The pandemic and related lockdowns adversely affected sales of our individual policies, primarily in the fourth quarter (Q4) of FY20 (down 22.66 per cent from Q4 of FY19). In Q1 of FY21 and FY22, it was down 46.20 per cent and 34.93 per cent, respectively, from Q1 of FY19,” LIC said in the draft red-herring prospectus (DRHP) filed with market regulator Securities and Exchange Board of India (Sebi).

In H1 of FY22, LIC issued about 19 million individual and group policies (in terms of lives covered), down 38 per cent from the same period in FY19 (pre-pandemic).

Consequently, the number of active individual agents of the corporation decreased by 17.48 per cent from 1.08 million as of March 2021 to 896,208 as of September 2021. Active agents are ones who have sold at least one policy in the previous 12 months.

LIC has traditionally been an agency-driven institution, with 1.33 million individual agents as of January 2022. This is more than 55 per cent of the total individual agents the life insurance industry in India has.

Further, the pandemic caused a deferral of exams by the insurance regulator for individual and corporate agents. This prevented LIC from adding as many new agents as it would have liked to.

“Our individual policies are primarily distributed by our individual agents. For FY19, FY20, FY21, and the six months ended September 30, 2021, our individual agents procured Rs 49,338 crore, Rs 49,210 crore, Rs 53,574.645 crore, and Rs 21,122 crore of new business premium (NBP) for our individual products in India, respectively. This was 96.69 per cent, 95.73 per cent, 94.78 per cent, and 96.42 per cent of our NBP for individual products in India, respectively,” said LIC in the DRHP.

Meanwhile, the corporation’s death claims shot up substantially because of the pandemic. In the first six months of FY22, when the second wave was at its peak, LIC paid death claims to the tune of Rs 21,734 crore, which is almost 90 per cent of the total death claims paid in FY21.

Covid death claims for the life insurance industry were particularly high in Q1 and Q2 of FY22, owing to the devastating second wave. This has since come down as the effects of the second wave have receded.

In FY21, LIC paid death claims to the tune of Rs 23,926.89 crore; in FY20, it had paid Rs 17,527.98 crore; and in FY19, death claims paid by the corporation was Rs 17,128.84 crore.

In H1 of FY22, LIC received 793,384 death claims; in FY21 it was 946,976; in FY20, the number was 758,916; and in FY19, it was 750,950.

Further, in order to shield its balance sheet from the adverse mortality experience of Covid, LIC had set aside a separate mortality reserve of Rs 7,419.56 crore as of September, 2021.

“We will continue to review this mortality reserve as the pandemic evolves. Currently, we believe the mortality loading in premium rates is adequate for the long term due to the expected duration of the pandemic,” LIC said in the DRHP.

LIC is expected to list on the bourses in March for which it has filed its DRHP on Sunday. The government will offload 5 per cent of its stake in LIC and is expected to mop up more than Rs 60,000 crore.