In what can be seen as a gauge of Life Insurance Corporation of India (LIC) policyholders’ enthusiasm for its maiden public issue, its chairman MR Kumar said that over 60-70 lakh PAN (permanent account numbers) have been updated on its website so far. Completing this exercise is mandatory for participating in the IPO under the policyholders' quota.
The state-owned life insurance behemoth, that is set to roll out its initial public offering (IPO) in March, is also assisting policyholders who do not have demat accounts. “A lot of interest has been generated. We have been having meetings with all our offices to help policyholders link their PAN. In the case of policyholders who do not have demat accounts, we have also requested NSDL and CDSL to help us out (as LIC cannot do it directly),” LIC chairman MR Kumar said while addressing a virtual press conference on Monday.
The extent of policyholder reservation portion – the ceiling is set at 10 percent – and likely discount will be disclosed when LIC files its red herring prospectus, which is likely to happen next month. Now, only those who purchased LIC policies before February 13 (date of filing draft red herring prospectus) will be eligible for this quota. Those who haven’t linked their PAN have time until February 28 to complete the process.
Also read: LIC invites its policyholders to become shareholders by updating PAN details
Impact of change in profit-sharing arrangement
An amendment to the LIC Act, 1956, last year paved the way for altering the profit-sharing arrangement between participating policyholders and shareholders (government, in this case). From getting a 95 percent share in the surpluses so far, policyholders’ share will gradually go down to 90 percent by FY25. This could potentially mean lower returns for participating policyholders.
However, LIC’s management on February 21 sought to allay these concerns. “There is no shortchanging for anybody. Policyholders’ interests will be taken care of,” said Kumar. He said that the change in the ratio was brought about by the need to realign the company’s approach with that of the private players. “By FY25, we will be perfectly aligned with the private players. We need to look at it from that angle,” said KR Ashok, Chief Actuary, LIC.
Moreover, this is not the only factor that determines the regular bonuses for participating policies. “When we look at bonuses, various factors are concerned. The main factor is how the corporation performs vis-à-vis what was assumed at the beginning of the year. It is difficult to single out one particular factor (change in profit-sharing) and its impact,” said KR Ashok. There is also a possibility that the bonuses could actually improve, LIC officials claimed. “Each product has a different bonus rate…also, if something more positive happens, bonuses could improve too. It all depends on how the corporation performs in relation to the (year’s) assumptions,” said Kumar.
Greater focus on non-participating plans
LIC is planning to place greater emphasis on non-participating products – where 100 percent of profits is allocated to shareholders - going forward. In FY21, the corporation registered a growth of 15 percent over FY19 in non-participating protection products, while new business premiums in the non-participating individual category grew 30.8 percent. Individual new business premiums in unit-linked category rose 369 percent. Annuity pension segment reported a growth of 11 percent during the same period. “This continues to be the trend in the first half of FY22. Growth is very fast in non-participating products,” said Kumar. Increase in the share of non-participating products in its product mix will help boost its (value of new business) VNB margins, which is a key valuation metric, industry experts say.
Digital distribution in focus
The insurance colossus will also sharpen its focus on digital distribution in the days to come. "We have seen a 61 percent increase in digital transactions. This is also due to COVID, as more people came forward to make online premium payments. Video-based (pre-policy issuance) medical check-ups are also in place. For selling and marketing new products (directly online), too, we have a channel that we plan to refurbish to make it more convenient. We have also tied up with Policybazaar. We expect to see a lot of traction in the digital space, going forward," added Kumar.
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