Life Insurance Corporation of India (LIC) aspires to evolve into a financial conglomerate with interests spanning insurance, housing finance and other businesses, Managing Director and CEO R Doraiswamy told Moneycontrol.
While current regulations do not permit insurers to promote banks, LIC may revisit opportunities in the banking space if the regulatory framework changes, he said, adding that the insurer would also explore the feasibility of LIC Housing Finance acquiring a bank.
In an exclusive interview with Moneycontrol, Doraiswamy also discussed LIC’s strategy to navigate evolving insurance regulations, including the proposed IRDAI commission norms and expense-of-management limits.
LIC has submitted data-backed suggestions to the regulator, taking into account differences across product lines and distribution channels, and highlighted the importance of its individual-agent network.
The CEO
also spoke about the insurer’s efforts to improve product mix and margins, its
use of artificial intelligence, the valuation overhang on its stock, and plans
to unlock value from its investment in IDBI Bank.
LIC has seen several regulatory and tax changes over the past five years,
including GST 2.0, while new distribution norms are also being discussed. How
would you sum up the period, and what should the next five years look like?
LIC’s 70-year legacy, strong brand and trust remain our biggest strengths.
Despite 26 years of competition, we continue to be the market leader, and we
want to build on that position. Over the next five years, our focus will be on
preserving this legacy while making LIC more agile, digitally enabled and
customer-centric. We want to meet the evolving aspirations of younger, with the
ambition of remaining the leader when LIC completes 100 years.
Private insurers have become more sophisticated in product innovation, distribution and customer acquisition. Where does LIC need to catch up to retain its advantage?
We continually review our comprehensive portfolio to address evolving customer aspirations. Our reach is another key strength, with physical offices in 92 percent of the country’s districts and agents and distribution teams covering all districts.
We will
continue engaging customers, agents, distribution partners and other
stakeholders, while leveraging data analytics and digital capabilities to
identify emerging needs, develop relevant products and remain competitive.
How is LIC using artificial intelligence, and where do you see it expanding? Will use of AI result in trimming workforce?
LIC is
deploying AI across onboarding, customer engagement, fraud detection, analytics
and support, with a dedicated Centre of Excellence driving adoption.
Applications already include liveness checks, renewal reminders and
maturity-claim documentation, with potential expansion into underwriting and
claims. We do not view AI as a tool for workforce reduction. In fact, I think
it aims to equip existing employees with AI-enabled tools to improve customer
service.
How have customer preferences changed in life insurance?
Younger
customers are increasingly seeking products with greater certainty,
particularly guaranteed plans that offer clarity on cash flows, payouts and
benefits.
However, this is not a wholesale shift away from participating products, which continue to see strong demand. ULIPs have also gained traction, including at LIC, as customers seek to combine insurance and investment, while participating savings plans remain important for portfolio diversification.
As younger
customers become a larger part of our base, demand for ULIPs and guaranteed
products may rise, but annuities and both participating and non-participating
savings products will continue to have a role.
What was LIC’s feedback to IRDAI on the draft commission norms?
We welcome
these initiatives. The regulator’s consultation paper seeks to rationalise
these costs and pass greater benefits to customers. However, insurers have
different business models, distribution strengths and cost structures, so the
approach needs to be calibrated to individual circumstances. Our suggestions to
the regulator have also been around specific product lines where the
commissions caps impact significantly.
How would the proposed commission norms affect LIC, given its higher
reliance on individual agents?
The impact
on this channel is likely to be lower than on institutional distribution. The
proposal also envisages differential distribution costs for IDPs and IDEs, with
the broader objective of making life insurance a product that is bought rather
than sold. LIC has submitted specific suggestions backed by data, but I would
not disclose them as the matter is still under consideration. We have complied
with regulations throughout our 70-year history and will ensure full compliance
with any new norms.
Have your agents’ concerns been incorporated into your feedback?
Our agents
are the mainstay of LIC’s distribution, alongside banks, corporate agents,
brokers and other intermediaries that have joined over the past decade. We have
met agents in different groups, communicated with them and exchanged ideas.
They have shared feedback, which we collected, consolidated and used as inputs
while finalising our submission to the regulator.
LIC’s latest results showed a roughly 21% increase in margins and a VNB
expansion of more than 400 basis points. What is driving the improvement?
Since its 2022 IPO, LIC has focused on improving product mix, taking non-par products’ share of individual APE close to one-third and par products to two-thirds. This has helped expand margins from 14 percent to 22 percent.
Other priorities include expense optimisation, diversifying distribution through banks and digital channels, and increasing ticket sizes and sum assured. LIC has also realigned products following the one-year surrender-value circular and changes in the accounting standards.
What is the
ideal par or non-par mix for LIC by the end of FY27?
We are targeting a one-third/two-thirds mix, with a margin of around 2 percentage points, by the end of FY27. Non-par currently accounts for 34.6 percent of our business, and this could fluctuate depending on the products we introduce or withdraw. The focus is on increasing non-par’s contribution, given LIC’s historical dependence on par products.
LIC is one
of India’s largest equity investors. Has the market volatility since February
28 prompted a change in its investment strategy?
Market volatility has moderated investment gains and AUM growth over the past
year. However, LIC remains a long-term investor, guided by company
fundamentals, valuations and policyholder return commitments.
Its investment strategy also reflects the nature of its products. Participating policies allow greater equity exposure, while non-participating products, which carry guaranteed benefits, require higher fixed-income allocations. LIC also uses interest-rate derivatives to hedge these portfolios.
Despite falling equity valuations, LIC generally stays invested through market cycles, selling selectively to meet policy maturity obligations. The correction has also created opportunities to acquire quality stocks at attractive valuations. Similarly, higher yields on G-secs and state government securities offer an opportunity to lock in long-term returns. LIC is evaluating opportunities across both asset classes.
Is LIC looking to increase strategic investments in financial services, technology, infrastructure or fintech?
Our investments are long-term and focused on enhancing yield while maintaining adequate security. Stability and long-term returns are the two main factors. We consider all sectors, including financial services, technology, fintech, insurtech and infrastructure, which we believe have attractive future prospects.
Does LIC aspire to own or operate a bank after its IDBI Bank stake is reduced?
LIC aspires to become a financial conglomerate, with interests across insurance, housing finance and other businesses.
However, current regulations do not allow insurers to promote banks. LIC’s entry into IDBI Bank was an exception, driven by the bank’s need for sustainable capital. With that objective fulfilled, LIC is reducing its stake alongside the government’s divestment. If regulations change, we may revisit the opportunity.
Meanwhile, LIC Housing Finance may technically be eligible to acquire a bank under the Banking Regulation Act, and we will examine its feasibility.
