The Life Insurance Corporation (LIC) is a government owned company. It’s a giant in the life insurance industry with about 70% market share. It’s a cash cow for the government and generated profit after tax ofRs 36,397.40 crores in FY 22-23.
A PSU like LIC which was formed with the taxpayers money is expected to show a high level of commitment and accountability to the citizens. How much is LIC committed to the citizens? Here is a brief analysis of this.
LIC's Assets Under Management(AUM) is ₹42 trillion. The GDP of the country is around ₹300 lakh crores. This would mean the AUM of LIC is 14% of the GDP. The Indian public paid a total premium of ₹2.32 lakh crores to LIC in FY 23. The corporation which takes such a large chunk of the household savings as premium every year, should be highly customer centric , in terms of the benefits it offers.
The missing "Life Insurance"
Now let us see how beneficial are the products of LIC to customers. Of the policies sold by LIC a lion's share of about 70% are endowment plans, a little short of 25% are annuity plans, close to 4% are ULIPs, 0.26% are guaranteed savings plans and a negligible 0.41% are term plans.
The endowment plans which are 70% of the product mix offer an IRR (Internal Rate of Return) of just about 6% which hardly surpasses inflation. The real life insurance product which is term insurance is under half a percent of the overall product mix which is painfully sad.
This indicates that the corporation is running behind high premium products which offer little return to policyholders and is hardly turning a serious optics to the most essential and meaningful life insurance product, term insurance which offers huge life cover of even up to 1000 times of the annual premium as life for younger ages.
On the contrary, endowment plans offer a cover of merely a tenth of this which would be of hardly any value to the family in the event of death of the insured. This throws a question on the corporation on its customer centricity and the benefit proposition it offers.
The rural regret
In rural India, among the financial investments done a large portion goes into LIC, if not all, thanks to LIC's agent network which has branched into every nook and corner of the country. Such hard earned money going into a 6% IRR endowment product is actually a financial damage caused to those financially under/ illiterate section of people. The large benefit corpus which is multiples of the annual premium paid sounds humungous to them, their innocence not realising how much the return percentage is really, and that it hardly beats inflation.
Though the corporation may claim the credit for bringing rural Indians into the ambit of investing, what is the point if there is no real returns generated post inflation? Why is LIC shying away from selling the real insurance product, Term Insurance? If a person lives long and saves, the savings will protect his family. What if the unfortunate event of death happens before adequate corpus is created? Isn't term insurance the paramount requirement?
The might of the agent network
If the densely penetrated agent network of LIC starts selling rural Indians term insurance, the real heart of the country would be financially protected. Wish to see the corporation giving itself a wakeup call to sell more responsible and meaningful products as its agents network would dwarf any other pan India network in no small measure and it’s the most equipped to protect the country through term insurance in the fastest time possible.
Wishful shift to true inclusion
From the current scenario of the LIC and its agents being the real beneficiaries and sadly not the policy holders, hoping to see a paradigm responsibility shift in the approach of LIC, to spread the smiles of real protection to Indian families and include them also in the list of real beneficiaries to make it a truly inclusive growth. This will only make "Life Insurance" in "Life Insurance Corporation" rational.
V Krishna Dassan, Director - Wealth Management, Dhanavruksha Financial Services Pvt. Ltd.
