Your VNB margin jumped from 15.4 per cent to 22.9 per cent, while the market share fell to 60 per cent. Was it a strategic decision to sacrifice market share for margin?
Our focus is on new business performance and growth. Market share depends on the relative performance of multiple companies, as well as the cyclical nature of the business. We are focused on achieving continuous, sustainable growth quarter after quarter. VNB depends on multiple factors, including product mix, ticket size, and the actual experience under demographic and economic parameters. Each product has its own VNB, so the organisation’s overall VNB depends on the mix of products being sold. We have continuously focused on increasing the contribution from non-par products, which has gradually helped improve margins. An increase in ticket size can also improve VNB. Our focus, therefore, is on continuously improving factors within our control — product mix, ticket size and demographic parameters. The risk-free rate is market-driven and is not within the control of an insurance firm.
LIC’s VNB margin in Q1 was 22.9 per cent, with strong growth in VNB. Do you think this is sustainable?
It depends on the product mix and the experience. We are looking to continuously improve it. Our product mix is evolving based on market needs. We continuously review our portfolio, identify product gaps and changing customer needs, and launch new products accordingly. If the market moves towards a higher contribution from ULIPs in a particular quarter, VNB margins may change accordingly. Similarly, the mix between retail and group business is also a factor. Our focus is to ensure that all products and business buckets show continuous improvement in margins.
LIC recently launched two products. Since increasing non-par contribution is helping margins, do you plan to increase it further?
Product design and new product launches are based on customer preferences and how the market evolves. Non-par products have been introduced primarily to meet these needs. Customers feel comfortable with products where benefits are guaranteed and not dependent on future performance. This also makes the policy easier to understand and purchase. We have seen increasing demand for guaranteed products, which has helped increase the share of non-par business and, consequently, VNB and VNB margins.
What is the level of non-par business you are targeting? How will that affect your VNB margins?
We have reached 30-35 per cent of individual annual premium equivalent (APE) through non-par products. We expect this to consolidate around these levels. One-third or two-thirds mix would be ideal. Margins cannot continuously increase.
As our portfolio has changed, we have been able to show an increase in VNB margin. We expect the margin to hover around the prevailing market level. Around 24-25 per cent would be an ideal margin.
What is your target for new business premium growth this year? Do you see the market share increasing?
We are looking for growth equal to or better than the industry. In the first quarter, we grew by more than 10 per cent. We expect growth to remain in that region and would like to achieve continuous, decent double-digit growth. With more players entering the market, some reduction in market share is expected. Our focus is to ensure that our growth remains intact and that we achieve sustainable year-on-year growth.
What level of sustainable growth are you targeting, and what market share level would you want to protect?
It is not easy to give that kind of guidance. The Indian market is very large, and the industry needs to work towards insurance for all. Taking these factors into account, we would like to maintain market share around current levels — 60 per cent overall, 40 per cent in individual business and 70 per cent in group business. However, this will depend on market dynamics. Our objective is to continue growing and maintain a market leadership position in terms of growth as well. For a large organisation with a 70-year legacy, this is not easy, but it will remain our focus.
Is the insurance industry moving back towards the agency model rather than bancassurance because of misselling concerns? Is this a return to basics?
Misselling has to be addressed at the point of sale, irrespective of the channel. Insurers have to ensure reliability and trust in the market. The regulator is also continuously monitoring and addressing this issue. Bancassurance evolved after the opening up of the market and the introduction of corporate agencies. For private-sector players, it initially provided an easier way to enter the market and gain market share. They may now consider other alternatives as part of their expansion strategy. LIC has traditionally been a strong agency-driven organisation. We will continue to focus on improving the agency organisation, increasing agent numbers and enhancing productivity. At the same time, we are improving our contribution through banks, corporate agents, brokers, IMFs and other alternative channels.
LIC has around 1.5 million agents, but the number has declined while agency contribution has improved. Is this a conscious strategy?
No. We are looking for a stronger contribution from agents. When we recruit agents, there is no guarantee that every person intends to continue for a long time. We also launched Bima Sakhi, a women-centric initiative that provides stipend support. Initially, some people joined without fully understanding the expectations and later left. Our focus is on agents who are serious, want to make insurance agency their career and continue performing. We want to create more long-term, professionally focused agents through hand-holding, training and improved productivity while also increasing the number of agents.
Bancassurance remains a very small part of your business. What contribution are you targeting?
It is relatively small because our agency channel is very strong. We have good partnerships with banks and continue to add to them. Some banks are exclusive LIC partners, while others operate under the open-architecture model with multiple partnerships. Ultimately, bank management decides how much business it will allocate to different partners. We support our bank partners through our officers collaborating with specified persons and branch-level marketing officials of banks. We are strengthening connectivity with banks at both the top and branch levels. Bancassurance has been showing good year-on-year growth, and we expect that to continue in the current year.
LIC has indicated that it is looking to invest in fintech. Have you finalised any opportunities?
Any insurer or financial institution has to employ technology to run its business. LIC has a strong internal IT team, while technology is also procured from external vendors. At the same time, LIC needs to deploy its funds to generate good and secure returns for policyholders. If we can invest in a company with a strong value proposition that can also provide services to LIC, that could be beneficial. If there is a business need and an investment opportunity, and the company meets regulatory criteria, we can consider taking a strategic stake.
Key considerations would be the company’s growth outlook and potential synergy with LIC. We keep our eyes and ears open. LIC has investments in more than 350 companies and has taken strategic stakes across sectors. We will continue to evaluate opportunities as they arise. People are trying to identify the best opportunities available.
Does this change your focus away from investment in health insurance?
These are parallel initiatives. There is no change in our focus. As we accumulate funds, we have to deploy them appropriately and continuously look for investment opportunities. That opportunity can never be completely off the table. We continuously look for investment opportunities, keeping in mind regulatory provisions and the need to generate sustainable returns with relatively lower risk. We had explored taking a strategic stake in a standalone health insurer to understand the industry. However, the Bill has been passed, so this is no longer an urgent requirement and we can take our time evaluating the opportunity.
Given geopolitical uncertainty and volatility in equity markets, what is LIC’s investment strategy for the year?
Our investment strategy is determined by the type of business that brings in the money. Non-par funds are largely invested in fixed income to protect guarantees, while ULIP investments follow the underlying product mandate. For participating business, 50 per cent has to go into government securities and approved investments, while the balance can be invested elsewhere, including equity within applicable limits.
When we have a choice between equity and debt, we consider market conditions. If equity markets are volatile and valuations are high, we may wait for a more appropriate entry point. Our focus is on long-term value appreciation. We buy in market dips while also booking realised gains when markets are high, so that policyholders receive the best possible returns. With interest rates currently high, we see an opportunity to increase investments in higher-yielding fixed-income securities, particularly when we have good volumes of business from non-par products.
LIC has a very large real estate portfolio. You had indicated that you wanted the portfolio to contribute more to profitability. Are you considering setting up a separate unit to monetise these assets?
We are looking at all possible opportunities. We want the real estate portfolio to contribute considerably to profitability, and creating a separate unit is one of the options being considered.
