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For LIC, life begins at fifty
Shobhana Subramanian
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January 15, 2007

The Life Insurance Corporation of India turned fifty last year. But age hasn't diminished the public sector insurance major's zest for growth. In fact, the corporation has turned in its best performance this year, post the privatisation of the industry in 2001.

Consider this: premium collections between April-November 2006 have jumped 187 per cent y-o-y compared with around 163 per cent for the industry. While others have also done fairly well, it's on a far lower base.

Says Thomas Mathew T, managing director, who's responsible for marketing: "Our market share is now up at 80 per cent, in March this year it was 71.4 per cent" Rivals too concede that the corporation has done a great job. Says the CEO of a private sector competitor, "All credit to them for having done so well."

A good part of LIC's collections have been in the form of single premiums, of which ideally only one-tenth should be accounted for each year.

However, Seshadri Sen, who tracks the financial sector at Macquarie Securities, feels that even after adjusting for this, the numbers are good. What has done the trick for LIC is the focus on Unit Linked Insurance Plans or ULIPs -- schemes where the money is invested in equities or bonds.

Of the total premium earned of Rs 35,219 crore (Rs 352.19 billion) between April and November 2006, approximately 46 per cent is accounted for by ULIPs, Two products in particular -- Market Plus (a pension scheme) and Money Plus (a plain vanilla ULIP) -- have done extremely well.

When LIC introduced ULIPs way back in 2000-01, it was almost uncomfortable selling them. But with rivals focussing on ULIPs, it didn't have much of a choice.

Observes Mathew, "Our focus has always been more on traditional or conventional endowment policies, but customers wanted ULIPs."

In fact even today, LIC doesn't seem to be too keen on selling them. Explains Mathew, "We believe that for the long-term viability of the organisation, non-single recurring premium products are better. And a lot of ULIPs tend to be single premium products."

While selling ULIPs is not too difficult at a time when the markets are on a roll, the difficult part will be to deliver returns. Says the investment head of a peer company, "Their fund management skills will be put to test now." Also on this kind of a base, total premium collected in April-November stood at Rs 35,219 crore.

With more ULIP policies being sold, the ticket size per policy too has increased: between April and November, it averaged Rs 11,200 -- up from Rs 6,100 in the comparable period of the previous year.

Not that this means LIC is selling fewer policies: it has sold 17.5 million policies in the first nine months of this fiscal compared with 31.5 million in FY06. Of this, one product alone -- New Bima Gold -- an endowment policy -- found 0.3 million takers.

Given that 50 per cent of the company's policies are sold in the last quarter when people rush to pick up tax-saving products, it should end FY07 with close to 37.5 million policies.

The corporation's biggest strength is its distribution channel -- it has a network of 10.52 lakh (Rs 1.052 million) agents This channel accounts for 95 per cent of LIC's collections, the remainder coming from bancassurance for which it has tie-ups with 26 banks.

Mathew claims LIC's commissions to agents compare with the best in the market. Moreover, they are now given extensive training and even sent overseas to learn about new practices.

However, Macquarie's Sen believes that with the private sector slowly closing the distribution gap, it will become increasingly difficult for the public sector insurer.

LIC plans to grow its agent network by about ten per cent a year; it will also increasingly reach out to customers in semi-urban and rural areas, rather than in the metros. And adspends will double this year to Rs 200 crore (Rs 2 billion) from Rs 100 crore (Rs 1 billion) a couple of years back. With this kind of aggression, it's hard to see the corporation losing steam.

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