LIC's Investments: A Fatal Hypocrisy

Life is like a wild roller coaster ride with lots of unexpected turns. However, do not be alarmed as there is an exceptional safety net that protects our loved ones from all the unforeseen setbacks along the path. Enter the world of life insurance, a significant area where ambitions are safeguarded, and futures are protected from unforeseen occurrences.

Do you know that the sales of life insurance contracts have increased by a staggering 3.51%, reaching all-time highs? Incredibly, 2,91,55,178 insurance units were sold in the fiscal year 2021–2022 as opposed to 2,81,67,513 the year before. It is evidence of how many people are realising the value of life insurance in securing their loved ones' future. The growing trend indicates that more people are becoming aware of the advantages and safety that life insurance provides.

It is clear that if the awareness among the people is increasing, then as a domino effect, the number of policies sold will also increase, which will eventually benefit the business. The Life Insurance Corporation of India is in charge of this magical region.

The story of LIC's journey to greatness is one of determination and excellence. Like a phoenix rising from the ashes, LIC has become a shining star of trust and reliability. Integrity, creativity, and a laser-like focus on its clients make up its secret sauce. Through its incredible selection of insurance products, LIC provides answers to concerns, and just like a classic work of art, LIC's market share demonstrates its unparalleled importance.

LIC is an undisputed heavyweight in the field of life insurance. Even if there are participants from the private sector doing their hardest, LIC stands strong, flexing its biceps and controlling the largest share💪. The private sector participants are not backing down. They are fighting for their fair share of the limelight by throwing fists in the ring. But hey, competition is what keeps the game entertaining. The competition between the public and private sectors for policyholders' attention is fascinating to witness. 

Milestones of India’s Life Insurance Industry

Let's travel through the important turning points in India's life insurance industry:

1818: The Oriental Life Insurance Company is established, marking the beginning of life insurance in India.
1870: Witnessed the founding of the first Indian life insurance firm, the Bombay Mutual Life Assurance Society.
1912: The Indian Life Assurance Companies Act, the first piece of legislation to regulate the life insurance sector, was passed.
1928: The Indian Insurance Companies Act, which gives the government the authority to compile crucial statistical information on both life and non-life insurance companies, enters into law, setting the ground for advancement.
1938: Witness the passage of the Insurance Act, which standardised and improved earlier laws, in order to protect the interests of the public that purchases insurance.
1956: The federal government acquires 245 Indian and international insurers and provident organisations, marking a turning point that starts a wave of nationalisation. 

With a capital injection of ₹5 crore from the Government of India, the LIC Act 1956, which was the starting point for the creation of LIC, became a reality. These turning points have shaped the course of the industry and ensured the safety and welfare of policyholders, serving as evidence of the development and advancement of the life insurance landscape in India.

The Indian Insurance Mafia

LIC, the mighty life insurance giant, has established its presence far and wide. Starting with 5 zonal offices, 33 divisional offices, and 212 branch offices in 1956, it expanded rapidly to meet the needs of policyholders. The corporation's reorganisation proved magical, as it witnessed remarkable growth—from 200 crores of New Business in 1957 to crossing the 2,000 crore mark in the following decade. By 1985-86, LIC had already surpassed 7000 crores in Sum Assured on new policies.
Fast forward to today, LIC operates with 2048 fully computerised branch offices, 113 divisional offices, and 8 zonal offices, along with 1572 satellite offices. Their extensive Wide Area Network(WAN) connects all branches through a Metro Area Network (MAN), ensuring seamless operations. Collaborations with banks and service providers enable online premium collection in select cities, making transactions hassle-free.

Financial Performance

LIC flexed its financial muscles and said, "Hold my calculator. Let's dive deep into my financial fortress!"

• Surpassing expectations, their total First Year Premium (FYP) soared by an impressive 7.92%, reaching a staggering ₹1,98,759.85 crore. 
• Additionally, their Group New Business Premium surged by an astounding 12.66%, amounting to a whopping ₹1,43,938.59 crore. 

These figures clearly demonstrate the rising acceptance and confidence in LIC's insurance products. The incredible accomplishments of LIC don't end there. There are currently 2.17 crore outstanding policies, representing a significant increase of 3.56% in the number of new policies issued. 

LIC holds a sizable share when it comes to market supremacy. 

• The market share of total first-year premiums held by LIC as of March 31, 2022, stood at an amazing 63.25%, demonstrating confidence in their insurance plans. The market share held by LIC in terms of the number of new policies was an astounding 74.62% demonstrating LIC's ongoing dedication to supporting and defending the monetary security of a large number of people.
• With a total income of ₹7,21,102.57 crore, they have established a solid financial foundation. The premium income alone amounted to ₹4,27,419.22 crore. 
• The Life fund, an essential indicator of an insurer's stability, reached a remarkable sum of ₹37,35,759.72 crore, further highlighting LIC's robust financial position.

Following are some crucial financial metrics for evaluating a company's performance:

Assets Under Management (AUM) has increased from ₹36,76,178.8 crore in the fiscal year 2020–21 to ₹40,84,832.7 crore in the fiscal year 2021–22 as seen in the graph below.

The percentage of insurance claims that are satisfied by an insurance company as measured by the Claim Settlement Ratio, has gone up from 98.62% to 98.74%. The organisation has a proven track record of successfully resolving and settling insurance claims, and this improvement is seen as important. A greater claim settlement ratio means that more policyholder claims are successfully processed and compensated by the insurance provider. 
This positive trend not only instills confidence in the company's ability to honor its commitments but also demonstrates its customer-centric approach by providing timely and effective claim settlements.

Speaking about the solvency ratio next, the minimum Solvency Ratio that life insurers must maintain is 150%, according to the Insurance Regulatory and Development Authority of India (IRDAI). As of March 31, 2022, the Company's Solvency Ratio was 185% as opposed to the minimum requirement. 

Finally, the following are some additional significant highlights of the company's financial performance:

1. From ₹4,02,844.35 Crore in FY 2021 to ₹4,27,419.21 crore in FY 2022, total premium income increased by 6.10%.

2. Income from Investment & Other Income has increased by 5.13% from ₹2,79,360.65 Crore in FY 2021 to ₹2,93,683.36 crore in FY 2022.

3. Total Income rose from ₹6,82,205.00 crore in FY 2021 to ₹7,21,102.57 crore in FY 2022,an increase of 5.70%.

4. Net retention ratio for the FY 2022 is 99.86%.

5. For the FY 2022, the solvency ratio is 1.85.

6. Gross NPA has reduced by 22.89% from ₹35,129.89 crore in FY 2021 to ₹27,087.11 crore in FY 2022.

7. Net NPA is down 9.80% from ₹194.92 crore in FY 2021 to ₹175.81 crore in FY 2022.

8. Basic & Diluted EPS for the FY 2022 is ₹6.39.

With a total number of agents at 24,42,607, LIC holds its employees, particularly its agents, in the highest regard as they play a pivotal role in the company's operations. For their sales ability, the army of LIC agents deserves a standing ovation. They really are masters of persuasion, able to convince you that dying has more perks than staying alive! Even the most sceptic spirits can be persuaded by these agents' powerful enticement to view the afterlife as a preferable option. Just a word of caution from my personal experience, in case you ever encounter an LIC agent, with their unparalleled sales skills, be prepared to doubt your very existence!

Claim Settlement Ratio

The claim settlement ratio functions as an insurance company's report card and is a gauge of how successfully the insurance provider keeps its promises, ensuring that individuals are cared for when they most need it. If the ratio is high, the business has done a superb job of disbursing funds to the surviving family members of the deceased or to individuals whose insurance policies have run out. People feel more comfortable and safe purchasing insurance from a firm when they are confident that they will be taken care of in the event of an emergency. Let us look at some important figures related to the Claim Settlement Ratio of LIC:

In 2021-22, LIC settled a whopping 2.67 crore claims, totalling a massive amount of ₹1,92,568.54 crore.

The graphs below unveil a tale of triumph for LIC! Witness the rise of Maturity claims and Death claims settled over the past three years as they soar high. This upward trajectory signifies a glorious ascent, depicting positivity and growth.

When it comes to maturity claims, LIC excelled by paying 90.99% of them. This means that policyholders who reached the end of their policy terms received their rightful benefits, ensuring a secure financial future. Additionally, LIC's performance in settling death claims was remarkable, with an impressive payout percentage of 98.76%, signifying that LIC stands by its promise to support families during difficult times, ensuring they receive the necessary financial assistance after losing a loved one.
But wait, there's more! Brace yourselves for the grand reveal of the amount disbursed for both Maturity and Death claims as they have ascended.

Not only does LIC have a substantial life fund, but its total assets also stood at an impressive ₹42,30,616.95 crore. These assets reflect the company's ability to manage and invest funds wisely, ensuring long-term sustainability and delivering reliable insurance services to its vast customer base.
Overall, LIC's claim settlement performance, along with its strong financial standing, exemplifies its commitment to its policyholders and solidifies its position as a trusted and reliable insurance provider in India. 

Focus Areas for LIC

Here are the key focus areas for LIC:

1. Innovative Products: They plan on developing innovative life insurance products that cater to evolving customer needs with a digital-first approach and personalised options. They are embracing digital platforms for sales, interactions with agents and advisors, and hassle-free servicing.

2. Leveraging Market Platforms: The company must stay relevant and provide personalised experiences by leveraging market and industry platforms. Insurtechs and digital attackers pose a disruption risk, prompting insurers to digitise processes, enhance accessibility, and offer diverse and user-friendly products.

3. Value Creation: They are reinventing business models to grow and deliver value to shareholders. This involves investing in Insurtech, scaling new businesses, improving cybersecurity, and expanding capabilities across the organisation.

4. Enhanced Customer Experience: Meeting evolving customer expectations requires a shift in distribution. LIC is moving towards providing a seamless, consistent "multi-access" experience across digital and offline channels while offering product advice. Digital innovation is crucial for acquiring and retaining customers, launching new products, and optimising costs.

5. Engaging with Ecosystems and Insurtechs: Embracing digitalisation and engaging with ecosystems and Insurtechs to reshape the value chain. Modernising core technology platforms is crucial for catering to customer needs, driving productivity gains, and achieving operational excellence in the face of a paradigm shift in the industry.

A fantastic carnival of adventure and excitement will be created by LIC as they expertly balance innovation, digitalisation, and customer-centricity. 

Areas of Concern for LIC

We covered the areas that the company is planning to focus on but let us look at the areas that can cause a concern to them:

1. Market penetration and the protection gap: The protection gap is the difference between the ideal level of insurance coverage and the actual level of coverage in a nation. The protection gap for life insurance in India is a staggering 92%. This places a heavy financial burden on individuals, families, businesses, and the government. Affordable and customised insurance policies that make use of a large amount of data already available are essential to addressing this. In addition, the IRDAI advises insurance companies to adopt villages to guarantee 100% insurance coverage, emphasizing comprehending the wants of the populace and creating suitable goods.

2. Price Profitability: Due to consistently low-interest rates and pricing pressures worsening by price comparison websites, the insurance sector confronts difficulties. The total productivity has not increased much despite cost-cutting measures. The value chain, which includes sales, product development, operations, technology, and corporate functions, requires insurers to implement a holistic strategy to increase efficiency. To succeed in the post-COVID-19 environment, insurers must adopt a transformational strategy.

3. Risk management: The COVID-19 outbreak has brought attention to the necessity of insurance having business continuity plans. The shift to remote work has increased reliance on technology, leading to heightened vulnerability to cyber risks. The necessity for efficient risk management procedures to reduce potential malpractices has increased as a result of digitisation. Businesses must assess the pandemic's effects on operational metrics and solvency while also devising and putting into practice effective mitigation methods.

4. Adoption of New Distribution/Sales Mechanisms: Sales in the insurance sector are mostly dependent on personal interaction with customers. However, in order to offer competitive plans online, insurers must make investments in cutting-edge technology, given the change to hybrid work arrangements and shifting geographic footprints brought on by the pandemic. To remain competitive in the market, they need to also reevaluate their distribution methods by shifting the functions of agencies, brokers, and digital sales channels.

The protection gap, low-interest rates, pricing pressures, the need for effective risk management, and innovative distribution strategies are just a few of the important problems the insurance sector must overcome. It is essential for insurers to embrace digital transformation, increase productivity, and assess risks in order to succeed in the market environment that is always changing.

Investments

LIC, the financial powerhouse, has made a total investment of ₹40,84,826.84 crore. Within India, a substantial amount of ₹40,79,049.88 crore has been wisely utilised, contributing to the nation's growth and progress. Additionally, LIC has invested ₹5,776.96 crore overseas. This strategic diversification is well illustrated in the pie charts, showcasing the distribution of investments across various sectors. The sharp financial judgement of LIC shines through, promoting trust and prosperity both domestically and internationally.

The corporation has invested in several companies but the top 10 most significant investments are:

Reliance holds a significant weightage of 18.65% in LIC's investment portfolio, amounting to a huge investment of ₹1,03,235.86 crore. We have well-known brands such as TCS, SBI, HDFC, Bharti Airtel and ITC! Wait, ITC, one of the major cigarette producers in India. I mean, we all understand that while investment decisions are typically driven by financial considerations and risk management, the question arises: Is it ethical for a life insurance company to invest in a tobacco business? 

Tobacco consumption remains a major contributor to preventable deaths in India. The devastating consequences of tobacco use are undeniable, with tobacco-related diseases causing millions of deaths each year.

When a life insurance company entrusted with the responsibility of safeguarding lives invests in the tobacco business, it seems contradictory and displays its hypocrisy. An entity that aims to protect policyholders' well-being is supporting an industry responsible for significant health risks indirectly. 

While investment decisions are complex and multifaceted, LIC must consider the ethical implications of their investments carefully. Balancing financial interests with social responsibility is vital, especially when investments intersect with industries that contribute to public health challenges.

By aligning investment strategies with ethical considerations, life insurance companies can demonstrate their commitment to the well-being of policyholders and contribute to a healthier and more sustainable society. LIC has a fiduciary duty to its policyholders and operates within a regulated environment as a life insurance company. While LIC may invest in a variety of industries, including those involving goods like alcohol and cigarettes,it indicates that the firm wants people to suffer or be harmed. 

The Bottom Line

LIC is a force to be reckoned with in the insurance sector thanks to its exceptional growth and market domination. It has established itself as a top option for individuals and organisations looking for all-inclusive coverage and peace of mind by offering dependable and cutting-edge insurance solutions. 

It is significant to remember that LIC's investments are a strategic method to produce profits and manage a broad portfolio rather than a reflection of personal ideas or recommendations. In the end, a business earning profits is what matters.
 

You might also find these insightful:

• Life Insurance Companies in India: An Overview
• LIC’s Pension Plans: Are They Worth It?
   

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.