Overexposure to group business a challenge for LIC, say analysts

As Sat Pal Bhanoo takes additional charge as the managing director (MD) and chief executive officer (CEO) of Life Insurance Corporation of India (LIC), analysts said the state-owned insurer faces several key challenges. These include a declining market share, higher exposure to the group business segment, and over-reliance on the agency distribution channels, according to experts.

 

Under Siddhartha Mohanty, who demitted office on June 7, LIC reported a modest rise in total premium collections, from ₹4.74 trillion in FY23 to ₹4.88 trillion in FY25. The new business premium (NBP) grew to ₹62,495 crore in FY25, from ₹58,757 crore in FY23. However, this slow growth contributed to a drop in market share, which declined to 57.05 per cent in FY25 from 62.3 per cent in FY23.

 

“One of the key challenges for LIC is its over-reliance on group business. There is a pressing need to grow its individual premium base. A critical concern is its declining market share, which can be addressed by expanding its individual business,” an analyst said.

 

“Moreover, there is a demographic gap with LIC largely catering to an older population while private players tend to be focused more on the younger population,” they added.

 

Amid the change in surrender value norms, effective October 1, 2024, that dented overall premium growth in the life insurance industry in FY25, LIC’s new business premium (NBP) rose just 2 per cent year-on-year (Y-o-Y) to ₹2.23 trillion. In contrast, NBP had grown by 16.67 per cent Y-o-Y to ₹2.32 trillion in FY23.

 

Of the total business, group business accounted for 74.71 per cent in FY23 as against 97.95 per cent in FY25.

 

The value of new business (VNB), a key profitability metric for life insurers, grew 9.3 per cent to ₹10,011 crore in FY25 from ₹9,156 crore in FY23.

 

The VNB margin also improved to 17.6 per cent, from 16.2 per cent a year earlier, driven by a sharp increase in the share of high-margin non-participating (non-par) products. The share of non-par products in the overall mix surged from 8.89 per cent in FY23 to 27.7 per cent in FY25, while that of participating (par) products dropped from 91.11 per cent to 72.31 per cent.

 

LIC’s solvency ratio rose to 211 per cent in FY25 from 187 per cent in FY23. However, the insurer’s 13th-month persistency dropped to 74.84 per cent in FY25 from 77.09 per cent in FY23, amid the change in surrender value norms.

 

“The company must also strengthen its bancassurance partnerships, as the bulk of its premiums currently come from the agency channel. Further, in a falling interest rate environment, LIC will also need to focus on optimising investment returns, especially given its substantial portfolio of government securities,” the analysts added.

 

LIC has the largest agency force with 1.63 million agents in FY25 with 93.88 per cent business coming from agency channels and 6.12 per cent from the banks and alternate channels.

 

“LIC’s biggest strength remains its vast agent network and deep penetration in rural and semi-urban areas—a market that private insurers are only beginning to tap into,” the analyst added.