LIC mulls higher ticket size products to absorb impact of new surrender value norms

LIC's net VNB margin expanded to 13.9 percent in Q1FY25

Insurance giant Life Insurance Corporation of India (LIC) expressed confidence in managing the impact of the new surrender value norms. In their Q1FY25 investors' conference call, the management outlined plans to develop higher ticket size products with lower surrender value behavior to minimise any impact on margins.

“Insurance companies might introduce products with larger ticket sizes where surrender behavior is less frequent or with varying durations to meet customer needs. Adjustments may be necessary as regulations provide flexibility. If existing products remain unchanged, increased surrender values could have a significant impact. However, if surrender values are revised upward, product designs will need to be re-evaluated to ensure protection,” the management noted.

Two months ago, the Insurance Regulatory and Development Authority of India (IRDAI) introduced new regulations for the surrender value of life insurance policies. Under these updated rules, insurance companies are now required to pay a special surrender value after policyholders have completed the full premium payment for the first year. This marks a shift from previous regulations, which provided no surrender value in the first year and began payments only after two years of premium payments.

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Regarding new product designs based on customer behavior related to surrendering policies, the management acknowledged that while there could be an impact on business volumes, it would also enhance product accessibility.

“The situation is dynamic, making it difficult to project exact impacts. However, we are confident that insurance companies, in collaboration with regulatory authorities, will find ways to sustain business growth while ensuring profitability and fair margins for all stakeholders,” LIC added.

In the quarter ended June, LIC reported 9.6 percent rise in net profit at Rs 10,461 crore, while total premium income increased by 15.66 percent to Rs 1.1 lakh crore. Around 35 lakh policies were during the quarter, registering over 10 percent growth in the year-ago period.

Additionally, LIC's net VNB margin expanded to 13.9 percent in Q1FY25 from 13.7 percent a year back.

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