LIC’s upcoming IPO, the latest IPO to become the talk of the town, is a crucial milestone for India’s life insurance sector. In this article we will tell you why LIC stands out on the upcoming IPO calendar. This might help you in deciding whether you should invest in the upcoming LIC IPO.
If Xerox has been a synonym for photocopy, Colgate for toothpaste and Band-Aid for adhesive bandages, LIC has been no different for life insurance. That’s the extent of dominance of LIC in India’s life insurance sector.
As on March 31, 2021 the total Assets Under Management (AUM) of the life insurance sector stood at Rs 44.80 lakh crore of which 76% has been with LIC of India.
Nearly 86% of premium underwritten by Indian life insurers in FY21 was from non-linked insurance policies and LIC has a 75% market share in this category.
A clear indication here is that insurance buyers aren’t willing to take market risk while investing in an insurance policy.
Since non-linked plans have no “market component” they are more stable and don’t expose LIC’s business to the risk of market seasonality/cycles. However, non-linked life insurance still remains a push product; i.e., an active relationship with a customer is paramount for garnering sales.
Insurance companies in India had 11,060 branches in FY21, of these 45% belonged to LIC alone.
More importantly, due to its prominent presence in Tier-III, Tier-IV cities, LIC appears to be in a sweet spot to capitalize on the growth opportunities in semi-urban and rural areas. Tier-I towns are those with a population of more than 1 lakh while Tier-4 towns are those with a population of 10,000 to 19,999. (IRDA definition)
These clusters must contribute significantly in the overall growth of India’s life insurance industry, if the story of India’s favourable demographics has to play out for the sector.
The life insurance industry in India had an agent strength of 24.55 lakh as on March 31, 2021. Here too, LIC dominates. On the same day, LIC had a large pool of 13.5 lakh insurance agents spread across the country, of which 80% were active.
LIC derives 94% of new business in the individual category form individual agents. No wonder, we see TV commercials appealing to individuals to become their own boss (Read: insurance agents).
On the other hand, private insurers predominantly depend on corporate agents such as banks. Corporate agents account for nearly 58% of new business in the individual category.
Although digitalization trends are catching up fast, their contribution to the growth of the life insurance business is still miniscule.
Direct sales channels contribute just about 1.1% in the new business collection, as far as LIC is concerned.
For private insurers, nearly 13% of sales comes from the direct sales category, which remains a crucial data point to track going forward, especially considering the internet explosion.
LIC has been embracing technology to augment customer convenience and digitally equip its agents and other channel partners with the aim of offering them ease of doing business.
If the growth of India’s life insurance sector unfolds as envisaged in this decade, it might reward early investors. The years of experience of LIC in risk underwriting and managing a large AUM promise to offer it an edge over other insurers. Its unique business model supported by phygital strategies could be another positive.
We have also written an article discussing various intriguing facets of the sunrise life insurance sector in India. You can read it here.
Hurry up! Open a Demat account now and be ready to invest in LIC IPO.
Disclaimer:
The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.
We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.
We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.
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