In normal times the Rs 12 lakh-crore Life Insurance Corporation of India, the country's largest financial institution , supports nearly 40% of government borrowing. LIC was in the news recently for bailing out the government's disinvestment programme and bearing part of the government's burden of capitalizing banks. The regulatory environment, meanwhile , has thrown up new challenges for the life industry. In an interview with TOI's Mayur Shetty, LIC's acting chairman D K Mehrotra speaks on how the corporation is responding to these changes.
How have the new guidelines on charges, agency and pension plans impacted LIC?
The changes in the charge structure have affected us only marginally as our charges were already low. However, the withdrawal of existing plans and the time lag in approval of new plans led to a dislocation of the whole marketing process as, besides new products, fresh training had to be given to the field force and new marketing strategies had to be devised . The minimum premium under Ulip policies had also to be substantially increased - from Rs 5,000 to five figures - to ensure viability and this has shrunk the Ulip market. The increase in lockin period has also discouraged the customers. Similarly, the new regulations on pension has led to withdrawal of all pension plans barring LIC's immediate annuity plan, Jeevan Akshay VI.
The change in agency regulations has led to accelerated exits and the insistence on 100% online exam - resulting in low pass rate, especially in deep rural areas - has not helped the matter. However, having been in the industry for more than half a century, we hope to weather this storm too. It has become important to clearly define annuity & pension as a common man is not clear about the difference between the two. There should be more thrust on pension due to increased longevity, high cost of medical treatment and shifting to nuclear family structure.
Has the shift away from Ulips hit LIC's ability to tap opportunities in equities?
The shift to traditional plans has been a conscious decision and has not impacted our ability to tap opportunities in the equity market. All investment decisions have been taken keeping the customer's interest at the fore, and if opportunities favor better returns to the customer, we would be back in equity markets in full swing. Witnessing the high volatility in the capital market , retail investors have refrained from going in for Ulips.
There have been reports that LIC is acting as a proxy for the government in recapitalizing banks...
As already mentioned, all investments are done with the focus on maximizing mobilization of people's savings. In the process, the government or banks may have benefited even as we strive to deploy funds to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. LIC is not a day trader and always goes into the market with a long-term perspective . Our decisions are always based upon proper diligence.
LIC continues to hit the 10% ceiling in more companies. Has there been any special dispensation from IRDA?
If you look at the size of our total investment portfolio of Rs 12 lakh crore, there is a limitation in terms of the number of companies that we can invest in. But even in cases where the investment has exceeded 10% of the company's capital, there is no concentration of risk for LIC because that investment is only a fraction of our portfolio.
What is your view on IRDA proposal that banks have zone-wise distribution pact with life insurers?
Prima facie, the idea does not seem to be very practical or customer friendly. The banks and LIC have a pan-India presence and zone-wise arrangements may only lead to duplicity of efforts and resources, which is a waste. We are, however , prepared for any distribution arrangements proposed by IRDA. This step may cause inconvenience to a customer , particularly those employed in transferable jobs.
The Direct Taxes Code proposes an EET (tax exempt at investment - tax exempt at accumulation - taxed at maturity) regime for life insurance policies?
Life Insurance is a long-term contract and EET would only act as a deterrent. The proposed exemption of Rs 50,000 is inclusive of tuition fees. The rise in educational expenses has been pretty steep and once the customer fulfils the educational needs of his children, there is nothing left as exemption for the insurance taken. We would advocate a separate exemption of up to Rs 1 lakh for insurance needs, exclusively for life insurance, health insurance and pension.
What has been LIC's international strategy after the global financial crisis?
Though we want to mark our footprint in some more territories , the regulatory compliance , being time consuming, constraints our entry. Nevertheless , focus is to increase the contribution of the foreign operations into our kitty.
LIC's credit card business has been in the offing for a long time...
We have now tied up with Axis Bank and have a fruitful partnership with them. The ultimate objective is to provide value-added credit card services to customers and employees of LIC, its subsidiaries and group companies. We wanted to increase the customer comfort and credit card was seen as a payment solution for them.
LIC has started selling products directly? What kind of direct distribution set-up do you envisage?
Direct marketing is one of our emerging distribution channels and is doing exceedingly well. This channel caters to customers who are tech savvy and prefer to deal with us online . We hope to sell policies online very shortly. We also have the direct service executives who provide the physical service to customers incase they require partial services like submission of the signed proposal form to the office.
How have the new guidelines on charges, agency and pension plans impacted LIC?
The changes in the charge structure have affected us only marginally as our charges were already low. However, the withdrawal of existing plans and the time lag in approval of new plans led to a dislocation of the whole marketing process as, besides new products, fresh training had to be given to the field force and new marketing strategies had to be devised . The minimum premium under Ulip policies had also to be substantially increased - from Rs 5,000 to five figures - to ensure viability and this has shrunk the Ulip market. The increase in lockin period has also discouraged the customers. Similarly, the new regulations on pension has led to withdrawal of all pension plans barring LIC's immediate annuity plan, Jeevan Akshay VI.
The change in agency regulations has led to accelerated exits and the insistence on 100% online exam - resulting in low pass rate, especially in deep rural areas - has not helped the matter. However, having been in the industry for more than half a century, we hope to weather this storm too. It has become important to clearly define annuity & pension as a common man is not clear about the difference between the two. There should be more thrust on pension due to increased longevity, high cost of medical treatment and shifting to nuclear family structure.
Has the shift away from Ulips hit LIC's ability to tap opportunities in equities?
The shift to traditional plans has been a conscious decision and has not impacted our ability to tap opportunities in the equity market. All investment decisions have been taken keeping the customer's interest at the fore, and if opportunities favor better returns to the customer, we would be back in equity markets in full swing. Witnessing the high volatility in the capital market , retail investors have refrained from going in for Ulips.
There have been reports that LIC is acting as a proxy for the government in recapitalizing banks...
As already mentioned, all investments are done with the focus on maximizing mobilization of people's savings. In the process, the government or banks may have benefited even as we strive to deploy funds to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. LIC is not a day trader and always goes into the market with a long-term perspective . Our decisions are always based upon proper diligence.
LIC continues to hit the 10% ceiling in more companies. Has there been any special dispensation from IRDA?
If you look at the size of our total investment portfolio of Rs 12 lakh crore, there is a limitation in terms of the number of companies that we can invest in. But even in cases where the investment has exceeded 10% of the company's capital, there is no concentration of risk for LIC because that investment is only a fraction of our portfolio.
What is your view on IRDA proposal that banks have zone-wise distribution pact with life insurers?
Prima facie, the idea does not seem to be very practical or customer friendly. The banks and LIC have a pan-India presence and zone-wise arrangements may only lead to duplicity of efforts and resources, which is a waste. We are, however , prepared for any distribution arrangements proposed by IRDA. This step may cause inconvenience to a customer , particularly those employed in transferable jobs.
The Direct Taxes Code proposes an EET (tax exempt at investment - tax exempt at accumulation - taxed at maturity) regime for life insurance policies?
Life Insurance is a long-term contract and EET would only act as a deterrent. The proposed exemption of Rs 50,000 is inclusive of tuition fees. The rise in educational expenses has been pretty steep and once the customer fulfils the educational needs of his children, there is nothing left as exemption for the insurance taken. We would advocate a separate exemption of up to Rs 1 lakh for insurance needs, exclusively for life insurance, health insurance and pension.
What has been LIC's international strategy after the global financial crisis?
Though we want to mark our footprint in some more territories , the regulatory compliance , being time consuming, constraints our entry. Nevertheless , focus is to increase the contribution of the foreign operations into our kitty.
LIC's credit card business has been in the offing for a long time...
We have now tied up with Axis Bank and have a fruitful partnership with them. The ultimate objective is to provide value-added credit card services to customers and employees of LIC, its subsidiaries and group companies. We wanted to increase the customer comfort and credit card was seen as a payment solution for them.
LIC has started selling products directly? What kind of direct distribution set-up do you envisage?
Direct marketing is one of our emerging distribution channels and is doing exceedingly well. This channel caters to customers who are tech savvy and prefer to deal with us online . We hope to sell policies online very shortly. We also have the direct service executives who provide the physical service to customers incase they require partial services like submission of the signed proposal form to the office.
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