LIC demerger, PSU insurer divestment drive 'Insurance for All by 2047'

An IIM Kozhikode panel has proposed splitting LIC and divesting weak PSU insurers to boost competition, capital and insurance penetration under the 'Insurance for All by 2047' vision

Splitting and unbundling the Life Insurance Corporation of India (LIC) to improve efficiency, along with divestment of public sector general insurers, are among the key recommendations of an expert panel from the Indian Institute of Management Kozhikode (IIMK). These suggestions emerged from two days of deliberations by the Life Insurance and General Insurance Councils, aimed at achieving the objective of Insurance for All by 2047.

 

The report, submitted to the General and Life Insurance Councils and the Insurance Regulatory and Development Authority of India (Irdai), noted that achieving this goal will require technological leapfrogging, capital deepening, and strengthened institutional trust.

 

According to the report, LIC enjoys a virtual monopoly, which disrupts competition in the sector. In 2023-24, LIC accounted for roughly 57 per cent of life insurance premium collections and 87 per cent of non-linked insurance premium renewals. It also represented 70 per cent of new policies issued, 59 per cent of new business, and 71.8 per cent of assets under management.

 

“There appears to be a prima facie case for splitting (demerger), divestment, or unbundling of LIC’s business,” the report said.

 

The panel suggested that the government could engage professional merchant banker advisory services to determine the most efficient and value-creating way to split and unbundle LIC’s activities. “This alone will spur increased interest from fresh investments in the sector,” the report observed.

 

LIC, however, disagrees with these recommendations. The report, which includes LIC’s views, said: “Splitting LIC will be disastrous for the life insurance industry. It will shake the confidence of citizens covered under roughly 270 million LIC policies and millions of others who feel secure with government-owned institutions. Such a move would have a deep impact on the overall economy of our country.”

 

LIC also said that its market share has gradually declined as a result of liberalisation measures and increased competition.

 

The report further recommended recapitalisation during the Union Budget 2026-27 or complete divestment of the three general insurers — National Insurance Company, Oriental Insurance Company, and United India Insurance — which currently have solvency ratios running negative, well below the regulatory mandate of 150 per cent.

 

“Capital infusions or divestment in state-owned insurance firms, including splitting and unbundling the life insurance monopoly, can jolt the industry, raise penetration and density, and spur fresh private-sector investments and merger and acquisition (M&A) activity, provided customer trust is built. As monopoly gives way to competition, the restructured industry will enable the use of artificial intelligence (AI)-machine learning (ML)-deep learning models, giving the development agenda and inclusion a real chance,” said Mridul Saggar, head of IIMK’s Centre for Macroeconomics, Banking & Finance.

 

The authors also recommended setting multiple quantitative targets with varied time frames, supported by qualitative criteria, to achieve Insurance for All by 2047. They proposed a 2030 target: within five years (2026–2030), 60 per cent of Indians who wish and can afford insurance should have coverage, including at least one term and one health insurance product.

 

“Irdai could break this five-year target into annual plans and monitor progress. It should aim to increase the insurance penetration ratio from 3.7 per cent in 2024 to 4.5 per cent by 2030, returning to levels seen during the 2020 pandemic year.”

 

By 2040, the industry should target 80 per cent of Indians who wish to have insurance, with coverage for one term and one health product, aiming for a penetration ratio of nearly 5.5 per cent and near-universal coverage across life, health, property, motor, and personal accident insurance, as well as comprehensive enterprise risk coverage (6.3 per cent penetration).

 

To address affordability, the panel advocated creating low-cost basic insurance products with daily or weekly micro-payments, particularly for informal workers, supported by Unified Payments Interface-enabled digital payments.

 

They also proposed an Insurance Inclusion Index, a three-stage principal component analysis capturing access, usage, and quality, as an effective measure of penetration. This would complement a swift transition to risk-based capital regulation, Ind AS/IFRS 17 implementation, and a deeper reinsurance market, including increased participation by global reinsurers to strengthen catastrophe and climate risk coverage.

 

The report recommended the need for large investments in research and human capital, focusing on data science, actuarial skills, AI-ML, cyber risk, and regulatory expertise, in partnership with leading academic institutions. It also recommended restructuring the sector through M&A activity.

 

The panel suggested authorities could consider dismantling the segregation of life and non-life business, allowing firms to operate across different lines for long-term value creation. Differentiated licensing — universal, monoline, specialist, or regional/micro-insurers — alongside “go-local” strategies with region-specific products, was recommended.

 

“It is best to let the number of firms evolve based on fair competition. The number of insurance firms in India could rise from 73 to about 120 within a decade, driven by sector opening, global integration, and competition, filling gaps in the market. Reinsurance firms could increase from two to about 11,” the report said.  It was clarified by IIM-K that suggestions on LIC were not a part of the two day deliberations, and its subsequent recommendations were discussed with some of the concerned stakeholders on a bilateral basis before the IIM-K made its final recommendation. 

What the report suggests

• ‘Insurance for All’ should target universal access, with near-universal coverage by 2047
• Create low-cost Basic Insurance Products with micro-payments 
• Irdai should introduce a composite Insurance Inclusion Index 
• Faster adoption of risk-based capital, IFRS-17 and deeper reinsurance essential for resilience
• Budget should address weak PSU insurers through recapitalisation
• Sector needs sustained investment in skills, data, AI and actuarial capacity