In her budget speech, finance minister Nirmala Sitharaman proposed to divest a part of the government’s stake in Life Insurance Corp. of India (LIC) through an initial public offering (IPO). It seems like the government is trying to make the most of the brand value of LIC, given that it is one of the few remaining profit-making entities owned by the state. Will the listing of LIC, which is the country’s largest financial institution with assets under management of close to ₹30 trillion, do any good to its policyholders? Most importantly, will the sovereign guarantee that policyholders get continue? Disha Sanghvi and Nilanjana Chakraborty talk to four experts to find answers:
Abhishek Bondia, Principal officer and MD, Securenow.in
Listing will boost LIC’s efficiency and thereby policy returns
The listing of LIC will be a positive move for policyholders. The benefit will, however, be indirect. As a 100% government-owned entity, LIC’s financial health is largely outside the scrutiny of the financial markets.
Investment returns for traditional policies are dependent on the insurer’s performance. Such plans form a big portion of LIC’s book. Unlike unit-linked insurance plan (Ulip) investors, who have a clear visibility on the daily performance of underlying funds, the endowment policyholders’ visibility is limited to annually declared bonuses.
Listing will allow analysts to monitor LIC’s governance. LIC will come under Sebi’s direct watch and will have to comply with the requirements meant for other listed firms. Such compliance is likely to strengthen its overall corporate governance, financial and investment discipline. Over time, this will increase its efficiency and it may deliver higher returns to policyholders.
Amol Joshi, Founder, PlanRupee Investment Services
Peers will be under pressure to improve pricing and features
Any company going public is good news for stakeholders since it ensures higher transparency, better governance, more disclosures and scrutiny from the investors.
However, LIC is not a typical company. LIC has in the past invested in the equity markets to stem its fall. After being listed, LIC will be answerable to public shareholders and, hence, will be a prudent investment decision, which is good for policyholders. LIC will also become more competitive. This will put pressure on its peers to innovate, benefitting policyholders in terms of pricing, product features and services.
LIC policyholders enjoy a sovereign guarantee on the sum assured and the bonus declared. This has been one of the main selling points for LIC policies. The proposed “partial" divestment, in all likelihood, will ensure that the majority stake is still with the government, thereby continuing the sovereign guarantee.