LIC IPO a growth impetus to financial sector

LIC going public is definitely a great boost to the entire insurance ecosystem. With all policyholders getting a preferential application to the IPO, the reach of the IPO is expected to be very high, thinks John Mayne, Executive Director, Coverfox. The insurance industry, otherwise, is still at its nascence in India. Thus, the basic awareness of all the digital-financial possibilities and their nuances is very limited.

The people availing of the fintech services should be made aware of the entire ecosystem at large through high awareness drives. One needs to know that the insurance products can be customized to suit the needs and then avail the same. Different insurance companies are trying to leverage the strategic partnership to offer various other services. ICICI Lombard's collaboration with Vega, ICICI Prudential Life Insurance's partnership with NPCI Bharat Bill Pay, a subsidiary of the National Payments Corporation of India (NPCI) are few cases in point. Speaking to Bizz Buzz exclusively, Mayne, analyses if such strategies pay off and much more about the sector.

First, your own company….What would you attribute the Coverfox turnaround to?

Our strategy of embedding our insurtech, CoverStack, with partners has been one of the key drivers of our turnaround story. Changing the approach of our business from a lead generation business to a technology company created avenues for us to simply insurance purchase for various insurers on different digital platforms. We are also channelling our insurance buying platform through our mobile app, Coverdrive, making insurance selling process easier for our onboarded individual agents.

Tell us something about ICICI Securities & CoverStack partnership?

Since our partnership with ICICI Securities, their customer journey for insurance products has been powered by CoverStack. We have provided them with end-to-end integration of our customized tech stack which has made it possible for their 7 million customers to now have access to seamless and convenient insurance buying experience.

Now, talking about the insurance sector, in general, what will be the overall impact of LIC's IPO? How would it facilitate and fuel consolidation in the banking and insurance sector?

LIC's upcoming initial public offering is one of the most talked about and awaited events for the Indian stock market. Indian government plans to divest 5 per cent equity for around Rs 65,000 crore in the insurance giant.

LIC going public is definitely a great boost to the entire insurance ecosystem. With all policyholders getting a preferential application to the IPO, the reach of the IPO is expected to be very high. LIC is the world's largest insurance giant when it comes to home market share with over 64.14 per cent of the total premium underwritten as of 2020. LIC is the third largest in terms of life insurance premium and the only insurance player in the world that offers the highest return on equity at 82 per cent.

Also, LIC is a cash-rich organization and has been instrumental in holding long term money for the economy at large. This money is channelized towards the infrastructural development of the country through government lending. Thus, the company going public and the funds being raised at such a tremendous scale would have a huge impact on the economy as a whole. It would provide enough impetus to the growth of the entire financial sector with a boost in confidence as well.

Union Budget 2021 had increased the FDI limit in insurance from 49 per cent to 74 per cent. India's Insurance Regulatory and Development Authority (IRDAI) has announced the issuance, through Digilocker, of digital insurance policies by insurance firms. How do you see such moves pushing the Indian insurance sector?

Not many foreign companies showed interest in investing, even though an FDI of up to 49 per cent was allowed in the Indian insurance market. Due to the FDI limited to 49 per cent, FDI's couldn't take the control or ownership of the companies, which remained in the hands of their Indian partner.

Approval of Indian stakeholders in the company was required for any change in business strategies or board-level decisions. However, foreign companies wanted equal or majority rights in the companies.

The FDI limit being increased to 74 per cent will allow foreign investors to become a major partner in the Indian insurance firms, and hence, it will help bring in the much-needed capital in the sector. Insurance companies will be able to raise working capital and reduce their solvency margin. Secondly, the penetration of their products will increase. With the increase of the FDI limit to 74 per cent, it allows more international/ foreign players to come in and increase competition. This benefits the consumers with a better product as well as better pricing.

Along with this, digitization of the entire industry is definitely a positive move towards the future of insurance. Every insurer and insurtech company is working towards making the entire system digital friendly with a seamless customer journey right from issuance of the policy to its servicing as well as claim settlement. DigiLocker empowers a consumer by taking away the hassle of paperwork and keeps their documents handy in the time of need. Ease will always create opportunity and in that sense the concept of DigiLocker along with other changes in the industry are helping in fastening its growth pace.

Many people think that the future looks promising for the life insurance industry with several changes in the regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. Do you subscribe to the same view? If so, at what rate, do you think the life insurance sector would grow over the next three-four years?

The millennial and the Gen Z population of the world do not have time for research and digitization has fastened the pace of the industry at large. The life insurance regulations and the industry have evolved a lot to match the pace and the requirement.

IRDAI aims to move insurance supervision towards outcome based and technology driven that is aligned with international standards. Rationalizing investment norms applicable to insurers, emphasis on the need for new products for millennials, and coming up with new channels of distribution in future are the proposed.

However, the life insurance products need to be standardized in nature, transparent and simple to understand as well as easily purchasable. Only then the average age for opting for life insurance will come down and the insurance penetration would rise.

The life insurance industry has been growing at a pace of 7.49 per cent over the last year and is expected to maintain a similar growth rate or slightly more at least for the next 3-4 years before it stabilizes.

What about the non-life sector?

Even the non-life insurance industry has changed a lot, especially with the pandemic. The focus on health insurance has increased largely in the minds of people. However, the trend for simpler and cheaper products is higher. Sachet products are very high in demand. However, there is a large scope of digitalization of other commercial products like fire, marine, etc. which should also be sold online.

The non-life penetration is much lower in India and stands at 1 per cent in FY21, but the industry has grown at a pace of 5.19 per cent in gross premiums last year. The pace is expected to rise with the overall focus on the non-life industry, especially the health insurance sector.

What about the idea of making health and home insurance mandatory for families with a household income of more than Rs 10 lakhs?

According to the research by Niti Aayog, they have come up with the concept of the Missing Middle of India, wherein it states that the top 20 per cent of the population is covered under health insurance voluntarily. The lowest 50 per cent segment of the society is covered through various government health schemes. However, the middle segment of 30 per cent of the entire Indian population is not covered under any health insurance and this leads to the largest contributing factor for out-of-pocket expenses for any medical treatment.

Thus, ideally, health insurance should be mandatory for everyone, not necessarily more than 10 lakhs. If the pricing is accurately positioned with the associated benefits, even families with lower income should be able to afford health insurance for themselves and their families.

Home insurance should be taken for sure in case the house is linked to a housing loan and even otherwise for the protection of the structure and its contents, especially in the coastal regions with a high incidence of storms and floods.