If you have heard of life insurance plans, you have heard of Life Insurance Corporation of India (LIC) - such is this brand's market and industry presence. The brand is rightfully called the true-life OG of the insurance industry!
As a life insurance provider, LIC has a foothold like no other insurer in the country - all thanks to its once-monopoly status in the industry. The brand started selling life and term insurance policies before any of the private insurers even started their journey.
However, there was just one significant product line missing from the brand’s portfolio - health insurance policies.
Currently, the brand is all set to bridge this missing link. The insurer is reportedly gearing up to enter the health insurance sector by acquiring a minority stake in a standalone health insurance firm. In recent interviews, LIC's CEO, Siddhartha Mohanty, confirmed the development, indicating that the deal is expected to conclude by March 31, 2025.
The question now is - with reports of LIC making its red-carpet entry into the health insurance industry, how will the scales tip (because they have successfully done so in the life insurance sector), how will it impact the existing insurers, and how are investors responding to this expansion strategy from the OG of the insurance industry in India?
Here’s what we know:
Details of LIC’s proposed Acquisition of a Health Insurance Company
According to details that are public, here are the facts:
- LIC is acquiring a standalone health insurance company.
- The insurer will purchase a minority stake in this company.
- The deal is in advanced stages and will likely be announced before 31st March 2025.
Why is LIC Entering the Health Insurance Market?
Mohanty said that ‘it is only natural for LIC to be in the health insurance industry,’ and we can see the appeal.
The demand for health insurance has surged significantly following the COVID-19 pandemic. And even after this surge, India's health insurance market remains underpenetrated. This figure also includes health insurance coverage from government health insurance schemes and group health insurance plans.
With LIC’s extensive network of agents reaching even India's remotest regions, the acquisition could accelerate comprehensive health insurance coverage, aligning with the government's goal of health insurance for all by 2047.
Quick Note: We feel that LIC views this as an opportunity to diversify its offerings beyond traditional life insurance products and position itself to capitalize on this growth area, aligning closely with the government’s goal of providing insurance for all by 2047.
LIC as an Insurance Company
Established in 1956, LIC has quickly grown into a giant within the life insurance industry, with an operating revenue of over ₹2.2 lakh crore in FY 2023-24. This is higher than the combined revenue of all the other life insurers in India. Yes, let that sink in.
LIC also maintains decent operational metrics, with a Claim Settlement Ratio (CSR) of 98.55%, an Amount Settlement Ratio (ASR) of 95.5%, and a notably low complaint volume of 7.3 complaints per 10,000 claims, compared to the industry median of 15 per 10,000 claims.
How LIC’s Health Insurance Venture Impacts the Insurance Industry?
The move represents a significant shift for LIC, historically dominant in life insurance but notably absent from the health insurance market. This is, however, due to a 2016 IRDAI regulation, which prohibits life insurers, like LIC, from directly selling indemnity-based insurance policies.
However, the regulations do permit insurers to invest surplus funds in other sectors, provided they comply with IRDAI and SEBI guidelines. This allows LIC to enter the health insurance space indirectly. And with the significant spike in demand for health insurance plans, LIC is definitely not ready to give up on this golden opportunity.
(For the uninitiated, health insurance is classified as an indemnity-based insurance policy. Here’s a detailed explanation we wrote about this.)
Potential Health Insurance Companies LIC May Partner With
While the specific firm LIC is in talks with to invest in hasn't been disclosed, that doesn’t mean that insurance experts won’t be speculating. We know that LIC is partnering with a standalone health insurance company. India currently has seven standalone health insurance companies, which are as follows:
- Star Health & Allied Insurance
- Niva Bupa Health Insurance
- Care Health Insurance
- ManipalCigna Health Insurance
- Aditya Birla Health Insurance
- Galaxy Health Insurance
- Narayana Health Insurance
Investor Outlook on LIC’s Strategic Expansion
Despite this acquisition's high potential, there has been no substantial reaction in LIC’s (NSE:LICI) share price yet, indicating investors could be cautiously optimistic pending the finalization of this deal.
Conclusion
LIC's expansion could significantly boost insurance accessibility to all corners of the country through its foot soldiers, ultimately ensuring people nationwide have a health insurance policy. We don’t know whether or not they will offer comprehensive health insurance policies; however, we do know that any health insurance policy is better than no insurance policy.
However, do keep in mind that we are talking about a PSU in this case. LIC’s foothold in the insurance sector is mostly based on its earned credibility due to its decades-long presence in the insurance industry. Unfortunately, LIC’s operational proficiency and lack of comprehensive policies across all genres of life insurance products have left us hesitant to have high expectations. Such expert analysis also forms the basis of why most market recommendations of best term insurance policies and top health insurance plans are almost always from the stable of private insurers.
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