The year gone by saw the re-emergence of Life Insurance Corporation of India (LIC) as the dominant player in the business. The state-owned company is on course to exceed the Rs 176,000-crore premium income target for 2009-10. In an interview, Chairman T S Vijayan tells Shilpy Sinha & Sidhartha that the company, the country’s largest institutional investor, will generate over Rs 200,000 crore premium income next year. He denied that LIC acted in the equity market on instructions from the finance ministry. Excerpts:
After two years of not-so-robust growth, you have shown a very healthy rise in first premium income this year. What helped you bounce back?
Insurance companies should not be judged only by growth of new premium income. They should be judged by overall collections and if there is consistency in this. We expect to grow by 19 per cent in total collections this year and by the end of March we should be able to cross our target of Rs 176,000 crore premium income in 2009-10.
Besides, people have understood that they should not bet everything on Ulips (unit-linked insurance plans) and should also have non-unit-linked plans in their portfolios. Ulips are difficult to guarantee, except for NAV (net asset value). In traditional policies, you can give guarantees because the investments are regulated.
Also, we undertook a massive exercise on around 700,000 agents through a PROT (post recruitment orientation training) in five months. We thought we’d expose the low producers to training. As a result, our average productivity has gone up. We have empowered our agents to collect premium and issue pucca receipts so that there are an additional 10,000 points through which premium can be paid.
We have also spent time training our 100,000 direct employees, most of whom were hired when LIC did not have any competition. We are telling them what is happening in the economy and in the market, where the service paradigm and the technology paradigm are shifting. The good part is that they are willing to accept change and face the competition. They are not only looking at their income but also what is the vision of the organisation.
Look at our cost and that of the private sector. Our productivity is far higher. You look at any measure, be it the number of policies per employee, the premium earned per employee, sales per agent or the premium collected per agent, our numbers are much better.
Is it very challenging to run an organisation like LIC, which is a public sector company, and also keep it in tune with what is happening around you?
Yes, it is challenging. We have 1.4 million agents and 2.5 million policy-holders. These numbers are huge but the bigger challenge is how, as a public sector organisation, one keeps pace with the changes in the market. India is a young country. A majority of the employees were recruited when there was no competition and the level of computerisation was low. Getting them to adapt to new realities and ensuring their morale remains high is a challenge. The challenge is to stay a step ahead of changes. A new player does not have any baggage of legacies.
You have also hired a consultant. What changes would you like to bring?
From focus on geographies, we have to migrate to a new system. Modern distribution companies and banks work on a pan-India basis. I would like to give a channel-specific relationship. This is one change LIC has to adopt. This is also applicable to group business.
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Given that insurance is not as transaction-heavy as a bank, where you transact several times a month, we should increase our dependence on web-based solutions down the line, so that people are encouraged to use these channels.
At the moment we sell 30-35 million policies every year and given India’s population, we need to double or treble the number. We want to increase that number to 60 million a year by 2012, given the needs of the population, the economic growth and the savings rate. We need to have the capacity to create products appreciated by customers and also develop the infrastructure to handle these in a short period. You will see us roll out some of these initiatives next year.
Last year, Jeevan Aastha helped you collect a huge amount. This year, you have launched another scheme, Wealth Plus, which guarantees returns. Are guaranteed returns the new reality for insurance companies?
The numbers of policies are one indicator of actual sales in the industry. Typically, a person buys Ulips to earn higher returns and he is willing to take a risk for that. Under Wealth Plus, we are guaranteeing the highest NAV (net asset value) in seven years. May be after the success of such products, we will (be able to) say if people are looking for guarantees. If it is somewhere near the collection of Jeevan Aastha, which was Rs 11,000 crore, we can say it is a success.
While you have seen healthy growth this year, a large part of the first premium income has come from single-premium policies, which came in for some criticism. Is it a fair criticism?
A company needs some strength to introduce single-premium policies. Non-single premium policies offer better margins. We have got the strength and that is why we are dominant in this space.
You crossed the Rs 50,000 crore investment level in equities this year. Where do you expect to close the year?
If there are good opportunities, we will be anywhere between Rs 55,000 crore and Rs 60,000 crore.
Does NMDC offer a good opportunity?
They have not declared the price. Everything depends on that.
Earlier, UTI was asked to step in whenever the government wanted to revive or strengthen the market. Now that you are the largest institutional investor, does that put some pressure on you?
If you are a fund manager and have strong cash flows, you will invest when the market is down and be cautious if it is continuously rising. A fund manager does not need daily prodding. Institutional investors like us do not get swayed by a 100-point rise or fall of the indices. Yes, if the market is going up, the investor psyche is affected and people are more willing to take risk. That is why 60 per cent of the products we sell are Ulips.
Has there been some prodding on the disinvestment side?
We are looking at this opportunity very positively and these are experienced companies that are doing well. Besides, where will you get this block in the retail market? We are looking at all initial and follow-on public offers.
Next year, the government is planning to raise Rs 40,000 crore through disinvestment. Will this impact your investment in private sector companies?
Our investments are not guided by whether it is a government issue or a private company issue. If it is a good private company, with good corporate governance, and a tradition of rewarding customers, it is as good as a public sector company. If there are too many offers in the market, there may be some impact. But, let us not forget that India has a large market, the economy is growing very fast, and so is the savings rate. Foreign money will also flow in.
There are a lot of companies where you hold over 10 per cent, the ceiling imposed by Irda (the insurance regulator). How do you plan to deal with this?
We operate through different funds. Traditionally, we operated the Life Fund and now we have the Ulip Fund and the Group Fund. There is more clarification required on some of our old investments, since we even hold more than 40 per cent in some companies.
The finance minister has announced that the Reserve Bank will issue more bank licences. You already hold sizeable stakes in Axis Bank and Corporation Bank. Will you now look at setting up a bank and seek a bank licence?
Corporation Bank is a public sector bank and it is a strategic investment. We are one of the promoters of Axis Bank. We hold significant stake in several other banks. Starting a bank is an entirely different ball game. We are waiting for the guidelines and will take a call based on the regulations.