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Life Insurance Corporation (LIC) chairman SK Roy put in his papers last week at a time when the slower growth in the domestic life insurance industry — which has even witnessed degrowth for couple of years between 2012-14 — has started impacting the development of the under-penetrated industry. The lacklustre growth, legacy issues, bail-out of public sector firms and the delay on part of the government in making key appointments, in both life and non-life segments, are making the situation tougher for insurers in an economy where growth is yet to show any significant improvement.
It’s getting tough for insurance players. Their investments in public sector banks have taken a big hit. Life insurance companies have witnessed a slower growth in individual first year premium collections for the financial year 2015-16. While individual first year premiums saw a 5 per cent growth in FY16 compared to FY15, group segment premiums saw a growth of 39 per cent for the financial year. This led to a double-digit growth of 23 per cent for the financial year 2015-16. With individual policy sales — the key area — remaining under pressure, they have started focussing on group business.
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While the top five private players including ICICI Prudential Life, SBI Life, HDFC Life, Max Life and Kotak Life saw double-digit growth, many private insurers reported negative growth or de-growth in the first year premium collection for individual segment. Data showed that those with bank promoters or with bancassurance agreements with large private sector, public sector and foreign banks have been at an advantage compared to those without such partners.
Only last month, while addressing LIC officials, Roy had said, “We go from house to house to search for insured or under-insured persons — let us target 4 crore lives during the year — Aadhaar and voter’s list will be the tools in our hand. We have always and justifiably, prided our unique position in the public sector, as far as market share in concerned. We shall continue to be focused on this. India has not been tapped in any significant manner — our penetration rate is a little above 3 per cent; insurance density, is also much behind comparative international averages.”
But last week, Roy asked the government to relieve him from the chairman post. In fact, sources say Roy was keen on going in April this year so that his successor will get the full financial year at his disposal, but the government did not relent. However, the government has now agreed to bring a new chairman as “quickly” as possible. When contacted for comments, Roy did not respond to telephone calls and emails.
Private players are giving a tough competition. “We believe that FY16 was a watershed year as the combined market share of private life insurers in the individual segment stood at 52 per cent, which for the first time, was higher than the share of LIC. This is an encouraging trend as 10 years ago, the market share of private insurers was only 35 per cent,” HDFC chairman Deepak Parekh said while announcing the merger of HDFC Life and Max Life last week.
Still, Indian life insurance sector has under-performed compared to its Asian peers, according to a report by McKinsey & Company. None of the private insurers in India are creating value as per the market potential. This is because they are all serving a miniscule segment of consumers, mainly to meet narrow investment needs. Even within this confined space, they demonstrate a significant spread in performance which is driven largely by distribution strategy, the report said.
On the other hand, investments by insurers, especially LIC, in PSU banks have witnessed a big depreciation in the wake of their huge losses and a spike in non-performing assets (NPAs). The Reserve Bank of India also expressed reservation against the concentration risk. “All I can say is that we are absolutely compliant. whatever limits the Insurance Regulatory and Development Authority (IRDA) has set for us … 5 per cent or 15 per cent. Every decision happens after due diligence. So we can’t say we are taking investment decisions without considering these factors. If I am compliant with regulations, I’m ok. I shouldn’t be non-compliant in letter and spirit,” Roy had said in an interview to The Indian Express last year.
RBI Deputy Governor SS Mundra had come out against LIC investments saying, “LIC on average holds 9.21 per cent stake in Indian banks. There is a contagion risk or interconnected risk. Suppose the banking sector is not doing well and is in trouble, the equity holding of LIC will see a value erosion.” Roy dismissed the “perception” that the corporation was bailing out the government’s disinvestment programme, saying “there’s no data to support this” argument. “Every investment decision happens after due diligence,” Roy had said last year.
Despite the tough market situation — when the Sensex declined by over 9 per cent in 2015-16 — and the fall in the shares of PSU banks, LIC made a profit of Rs 11,000 crore through its equity investments during the fiscal. The largest domestic investor pumped in Rs 2.70 lakh crore across equity and debt markets in the fiscal, of which Rs 65,000 crore was in the equity segment.
The government also played its part in prolonging the miseries of insurance companies. The two posts of managing directors in LIC continue to be vacant as there is a major difference of opinion between the Prime Minister’s Office (PMO) and the Ministry of Finance over the selection of candidates. The PMO has objected to the way the finance ministry selected Sunita Sharma — who is currently the CEO of LIC Housing Finance — to fill up the post which fell vacant in May 2014 after Sushobhan Sarker retired and for which interview of five candidates were conducted in June 2015. The file noting by the finance ministry for the appointment of Sharma to fill up Sarker’s vacancy was returned by the PMO with some queries. However, the ministry has since then sent the file back to the PMO with some clarifications.
Many top posts in public sector companies in the insurance sector are lying vacant with the government yet to make up its mind on the candidates. The government is yet to appoint a full-time chairman for Agriculture Insurance Company of India after its previous incumbent PJ Joseph joined IRDA as whole-time Director (life). United India Insurance is also headless as chairman Milind Kharat retired last month. AK Saxena of Oriental Insurance is also retiring next month.
There are no indications of any replacement from the government so far.