LIC’s potential move to acquire a 50 percent stake in ManipalCigna Health Insurance could disrupt the health insurance sector while unlocking fresh growth avenues for the state-owned insurer, analysts said. While LIC shares surged over 2 percent following the media report, Star Health and Niva Bupa declined up to a percent on November 28.
According to Deepak Jasani, head of retail research at HDFC Securities, standalone insurers like Star Health and Niva Bupa could find themselves at a crossroads unless they diversify into life insurance.
"Without entering the life insurance space, these players risk losing out on new revenue streams, while simultaneously contending with intensified competition from a diversified LIC," he added.
Chokkalingam G, founder of Equinomics Research also highlighted that LIC's entry could tighten margins across the standalone health insurance segment. "The market is already crowded with numerous joint ventures and emerging players. The arrival of a giant like LIC will only escalate the competitive intensity," he noted.
Data from the Insurance Regulatory and Development Authority of India (IRDAI) revealed that standalone health insurers currently hold an 11.57 percent share of the health insurance market as of October 2024, while general insurers dominate with an 85 percent market share. Among the standalone players, Star Health leads with a 4.93 percent market share, followed by Care Health Insurance at 2.65 percent, Niva Bupa at 2.05 percent, Aditya Birla Health Insurance at 1.4 percent, and ManipalCigna at 0.53 percent.
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Despite ManipalCigna’s relatively modest market presence, LIC’s acquisition could give it a significant boost. By acquiring a majority stake in an established player, LIC avoids the challenges of building a health insurance vertical from scratch. "This move aligns with LIC's strategy to leverage its vast policyholder base and expansive agent network, which will allow it to scale its health insurance operations swiftly," said Jasani.
A critical backdrop to this development is the pending approval of composite insurance licensing. Currently, life insurance companies can only offer long-term health benefits, while general insurers handle short-term health products like hospitalisation and indemnity coverage.
As per the Insurance Act, 1938, and the regulations of the IRDAI, composite licensing for an insurer to undertake life, general, or health insurance under one entity is not allowed. However, until such amendments to the Insurance Act are enacted, LIC's acquisition offers a strategic pathway into the health insurance domain.
In the recently concluded September quarter, LIC was the only life insurer to expand VNB margins up by 257 basis points YoY while peers like HDFC Life saw a sharp contraction of 200 bps YoY and SBI Life saw squeeze of 150 bps YoY. As a result, LIC clocked the highest value of new business (VNB) growth of 47 percent YoY in Q2FY25, while annual premium equivalent (APE) growth rose by 25 percent YoY during Q2FY25.
Despite a 12 percent rise in LIC's share price this year, outperforming the Nifty 50's 10 percent increase, the stock continues to trade below its issue price of Rs 949, underscoring the uphill battle to reclaim its IPO price.
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