LIC's share in life insurance was dwindling, pandemic only sped the decline

India's biggest insurer is losing market share and faltering on growth like never before, as it prepares to go public through an IPO

Life Insurance Corporation of India, a 65-year-old company run by the government of India, which has also been the market leader in its space ever since, is currently in the process of readying itself for an initial public offering. Various estimates of its valuation are doing rounds, and some of them have put the expected size of the IPO close to Rs 1 trillion--higher than any IPO in the history of India’s financial market history. 

However, recent months have been tough for LIC. Though it is the market leader, its share is declining, whichever way we look at it. Secondly, premiums collected by LIC are growing, but at a slower pace than private players in recent years. 

While private insurers have clocked double-digit growth in premiums collected from 2014-15 to date, LIC has shown negative growth for two years, and single-digit growth for three years. A part of this could be due to the fact that LIC collects more than twice the total premium collected by private life insurers.

During the past decade, LIC’s market share in first-year premiums collected dropped from 71.3 per cent at the end of financial year 2012-13, to 66 per cent in April-August 2021 (FY22). Though there have been ups and downs, there is a downward trend visible in the data, sourced from the sector regulator, Insurance Regulatory and Development Authority of India (Irdai). 

Though this is not a principle in general, LIC's life insurance policies are bought more so by relatively low-income individuals in India. The average size of an LIC policy is a fourth of private insurers’ average, according to a Kotak Securities report. 

Smaller ticket size, but a higher number of policies sold every year, is how LIC’s business is shaped. But in recent years, its share in the number of policies sold to individuals has also declined sharply. From 83 per cent in 2012-13, it has dropped to 70 per cent in 2021-22 (till August). 

LIC's market share of both, premiums collected and number of policies sold have dipped sharply in a decade

The drop in market share in the number of people benefitted is sharper still. It is basically the total number of people who are beneficiaries under the new policies sold in a particular period. 

In 2012-13, more than half the new beneficiaries of life insurance had a policy with LIC. This dropped to 30-45 per cent in 2016-2018. After the pandemic, it has plummeted to 15 per cent. 

LIC's market share in the number of beneficiaries and in sum assured has also dipped over the years

 

In the current financial year till August, close to 85 per cent of new beneficiaries of life insurance have paid their premiums to private life insurers, up from 45 per cent nearly a decade ago. 

The reasons for this could be the differences in which private life insurers and LIC operate. While agents are ubiquitous in the business of both, LIC’s dependence on agents is higher than that of private companies. 

Players like SBI Life, HDFC Life and Max Life offer easy online registration options for life insurance policies. Buying an LIC life insurance policy online is not that simple. An LIC insurance agent that Business Standard spoke to, said private players have better online services than LIC. 

The insurance sector got a fillip due to the gravity of the health crisis countries went through after the pandemic. The importance of online channels, too, increased especially after the pandemic set in. It is likely that slower adaptation to online channels and more focus on physical registration channels (agents bringing new business) could have hit LIC. 

LIC agents also mentioned that their ability to reach new customers was severely hit when restrictions were in place. And even when they were relaxed, many people preferred online-only options. 

LIC’s share in sum assured has also declined recently, data for which is available only from 2018. From 25 per cent in 2018-19, LIC’s share has fallen to 17 per cent in 2021-22 (till August). 

Private insurers managed to increase their market share on all fronts by having a smaller number of agents—all put together—than LIC. In fact, the growth in number of agents has also been faster for LIC in recent years. 

But the fact that it does not translate into rising share in the life insurance business again suggests that lack of online marketing may have hit the insurance behemoth’s relative strength. 

Having said that, private insurers have capitalised on the rising preference for life insurance in 2021, especially in recent months. For them, the two-year compounded annual growth rate of annualised premium equivalent increased from 4 per cent in June, to 10 per cent in July, to 14 per cent in August 2021, according to Kotak Securities.