Staying contrarian has worked for LIC: LIC Chairman | Economic Times

Insurance behemoth Life Insurance Corporation touches more lives in India when it comes to financial security than any other as its investment returns and settlements determine the fate of millions of policyholders. As the state-owned insurer prepares to go public, its chairman M R Kumar, in an interview with Ashwin Manikandan and MC Govardhana Rangan, lays out the strategy and gives a glimpse of what the future would look like. Edited excerpts:As the biggest institutional investor in the country, what are you picking up on the economy front as lockdown rules are getting relaxed?I believe that the Indian economy is better placed compared to several countries with comparable GDP. One reason is that in the last couple of months, the pandemic has eased compared with the European countries, especially the United Kingdom. Once the activities at the bottom of the pyramid accelerate, we will see the economy pick up further momentum.You made your biggest profits from equities in the first nine months. What is your reading of the financial markets?There could be short-term corrections in the stock market, the way it has been rallying over the past few months. We have to temper our expectations in terms of equity returns. The market is reacting positively to news around what is happening. The housing sector has picked up very well. At LIC Housing Finance, we are seeing record demand for home loans, especially for property around Mumbai.The finance minister has promised a budget like never before. What are your expectations?From a life insurance standpoint, India is heavily underpenetrated. We still have only 20% of the population covered under insurance, which converts into an overall coverage of ₹34 lakh crore. Imagine what an additional 20-30% coverage can do in the long term. If the government can push people to opt for insurance using tax breaks, it will be a positive move.The FM announced the IPO of LIC in the last budget. How far have you come?First and foremost, the listing of an insurance company requires that it be valued, for which we need to determine the embedded value. We have started this process. We will soon announce the software which will assist in determining our valuation. We have also floated an RFP (Request For Proposal) for the actuarial firm that will undertake the exercise. This calculation will take some time. Once this process is done, we will be ready.Will it be fair to say that FY22 could see the biggest IPO in the country?Fiscal 2022 is very much possible. The point is that it is going to be big and we want to get it right. Since we have not done this exercise before, we are not able to put a timeline to it. We are working on it, and the process itself is more important as we need to get the valuation right.What are the legislative amendments to the LIC Act that would be required before the listing?The amendments would be more about capital structure and dividends to policyholders, among other things. This needs to be done to conform with the Companies Act. Legislative changes to the LIC Act are being looked into by the Department of Financial Services. We will get a more definitive timeline once these processes happen. Also, some issues need to be gone through in terms of SEBI disclosures.Will there be any change in LIC’s investment approach once you become a listed company?No, there won’t be because we follow the insurance regulator IRDAI’s investment regulations. Also, policyholders have reasonable expectations and so do shareholders. Therefore, I don’t see any change in our investment philosophy. We will continue to stay contrarian as that has worked for us and I think it will continue to work for us.Many employees and public sector unions were not happy at the news of LIC divestment. How has this conversation shaped up over 2020?People have understood that it is not going to impact anyone negatively. I do hope that the 29 crore policyholders would also like to become our shareholders. Many government companies have been listed successfully in the past, and they do continue to excel.The impact of the pandemic was more pronounced on the health insurers. How did LIC navigate through the pandemic?Initially, when the pandemic broke out, there was a large-scale worry on whether we could come up with a cheap policy for mass coverage. The regulator has been very sensitive to this, and, hence has come up with Saral Jeevan Bima, a standard life insurance product.Would it be tougher for a person who survived Covid-19 to get life or health cover?More than deaths, the bigger risk is comorbidity arising from the Covid-19 pandemic. This is a bigger worry for the actuarial society. At this point, we don’t have the data to support whether the premium will be higher for Covid survivors. It will take some time for actuarial science to determine if at all extra premium would be charged.LIC’s selling point has been claims settlement. Is it sustainable?Many may not believe that more of our focus and time is on the settlement of claims than business procurement. We believe that claim settlement is the moment of truth and the major purpose of the entire business. The issue is not limited to amounts being settled, but the whole experience around it. As the chairman, I can share with you that possibly I get more sleepless nights on concerns related to claims than the business itself.How many Covid-19 claims have you settled? Did it meet your expectations?In every district, we had a touchpoint where the collector’s office would report Covid-19 death claims along with the mobile numbers to our zonal heads. We would then cross-check on how many were with existing policies before we got a claim. We actually witnessed how few people had insurance. More than 1.5 lakh died due to the pandemic, and hardly 15,000 to 20,000 had any covers; even within that 80% were LIC policyholders. It is disheartening. We have not done our jobs in insuring lives which is what I tell industry peers at conferences these days.What’s the most effective way to gauge the penetration of insurance in India?LIC used to talk in terms of sum assured. We have a concept called the Human Life Value (HLV) where people are insured based on their earning capacity in a 20 to 25-year window. Slowly, that metric has changed into the premium value of new business and other new-age metrics. We need to get back to sum assured and how much coverage an individual and the country need.December 2020 marked two decades of the entry of private insurance. LIC still has two-thirds of the market share. What needs to be done to maintain this?At LIC, we have a very strong agency model. Once the private sector came in, we knew what the challenges were before it reached us. We started computerisation very early. In the 70s there were two mainframe systems in Asia — one was at LIC. In insurance, products are only variations. Everything is built on top of protection and therefore, we have focused on that and continued to expand our agency model. This year, we have recruited over 1.5 lakh new agents. Thirteen lakh of the 22 lakh agents in the country are working for LIC. We have also been fast in developing new products for customers based on the need.