Insurer etched in Indian psyche

Only a handful of businesses can claim to be as embedded in the Indian collective conscience as the Life Insurance Corp of India, more popularly known as LIC. In fact. it's no stretch of the imagination to say that nearly every household in the country has an LIC policy, more often than not, lasting generations, as they offer returns that are safe and enduring.

But at a time when the Indian economy is growing at a rate that's nothing short of spectacular, are safe and sound returns still good enough for investors? Can LIC's legacy be carried on by the NRI community, based in the Gulf?

Alok Kumar, the Dubai-based resident manager at LIC International, reckons that business is just as good for the company as it always has been. And he says he is not worried about the future.

Gulf News: The regulatory authorities in India have made some changes to ULIPs [Unit Linked Insurance Plans]. How has this impacted on the insurance industry?

Alok Kumar: Effective from September 1, some important changes have definitely been brought about by the insurance regulator IRDA. It has always been pro-active to changes or to suggestions of modifications, whenever they find any kind of unfair practice being adopted by companies or their sales personnel.

Now, the benchmark guidelines will put a cap on the charges being levied by life insurers in respect of entry and exit loads. Besides, a cap on commission to intermediaries has also been introduced.

The lock-in period has been extended from three to five years, enabling insurers and investors to get handsome returns on their ULIP investments. All life insurers are now required to follow the new disclosure norms, enabling policyholders to make informed decisions about investing their money.

The old ULIP products have been shelved and new ones, satisfying the new guidelines, are being introduced.

There's been a cloud hanging over ULIPs and how they're managed. What's LIC's take on this issue?

The sale of ULIPs started on a very high note with the opening up of the insurance sector in India in 2000. Actually, it offers both the life insurer and the investor a choice of investment and costs.

ULIPs can give very high returns to an investor if he's ready taking a risk. Taking advantage of investor greed, life insurance companies started selling some ULIP products, in which the cost of purchase and maintenance was very high.

Most of the cost was being recovered from investors by way of entry and exit loads during the initial period of the policy. Projections were also given on the basis of some past performances of high returns.

Some insurers were giving high commissions to intermediaries selling ULIPs. LIC, being a public sector company, has to take care of a number of factors like security of capital, returns to investors, etc.

Besides, LIC has always wanted to provide long-term financial solutions for purchasers. In India, and elsewhere, we have the lowest entry and exit loads into any ULIP that is being sold right from the beginning.

Because of this, LIC now has one of the biggest funds being managed through ULIPs collected from the market.

There is a strong belief that LIC's unit-linked products are too conservative in the returns that they offer. How would you react to this?

LIC's charges, by way of entry and exit loads, have always been considerably lower than the market. LIC follows the principle of putting money in blue chip companies, which have long-standing past performances, government bonds giving security of capital and good returns, etc. The transparency norms are also high.

When market indices like Nifty, Sensex and Nasdaq were high, our ULIPs were performing better than benchmark market returns. At the same time, when all these indices went for a downward spin, our ULIPs stood up to the test and performed well. Investors were not making a run to withdraw funds from us, unlike other life insurance companies.

How would you assess new fund generation from your Middle East operations during the current financial year?

The Middle East operations form an important portfolio in terms of revenue generation and exposure. Of the total fund generation in the Middle East, the UAE contributes approximately 50 per cent.

During the last two years, fund generation from here is growing at around 40 per cent annually. This year is showing a robust 55 per cent gain on a year-on-year basis. For 2011 also, LIC is hoping to grow at the same level.

Are there any new initiatives targeted specifically at the NRI population?

A number of initiatives have been taken up by LIC through the subsidiary LIC International. For the ninth consecutive year, the yearly bonus, declared by LIC International, has increased in spite of the economic crisis. The bonus in 2009 was $29 (Dh106.50) per thousand SA.

Recently, we implemented a web-based operational system ensuring 24x7 service from anywhere. Any customer can view the status of the investment from home or the workplace.

An on-line premium payment facility will be a reality in the near future. A smart card facility is also being explored, enabling NRI customers to cash payments anywhere.

LIC's portfolio is mainly life assurance products. Do you intend to change that?

Life Insurance has been our core business for the last 55 years and will continue to be. Even today, the penetration of life Insurance in the country is only 27 per cent of the total population.

In addition, LIC has other operations, through subsidiaries like LIC Housing Finance, LIC Mutual Fund, LIC Pension Fund, LIC Card Services, LIC HFL Financial Services, etc.

Besides, we have been roped in to manage the funds of the Central Government's New Pension Scheme 2004 and provide technical support for a new initiative called Aadhar — Unique Identification Number, for all residents in the country.

Despite all this, life insurance will continue to be our core business. During the last two years of economic turmoil, you could see some of the big life insurance companies facing all kinds of fund shortages because of their deviation or transferring into other businesses where proper investments were not taken care of.

In the very space that LIC has dominated for decades, that of life assurance, you are facing increasing competition from joint ventures involving foreign giants. How's LIC coping?

Even today, LIC is the undisputed market leader and holds 75 per cent of the market share on premium income count.

Even 11 years after the opening up of the life insurance sector in India, the private life assurance companies are finding it difficult to snatch away any significant share of the insurance market.

Currently 26 private insurers are operating in India and they include, not only the foreign players, but national giants like Reliance, Bharti and Tata. Even some of the biggest public financial institutions — SBI, Canara Bank etc have entered the life insurance market.

When the industry opened up, it was expected that the penetration of life assurance would increase in terms of both number and premium. It has — the share of life insurance premium to GDP has gone up from 1.2 per cent in 2000 to 2.4 per cent in 2010.

Similarly, the share of life insurance premiums in the financial services of the household sector has increased from 11.40 per cent in 2000 to 19.50 per cent in 2009. And LIC is playing a big role in this.

LIC is the leader with respect to the number of policies — we are servicing 260 million in-force policies and the size of assets is Dh961 billion.

One issue investors constantly raise about LIC's portfolio of policies is that getting out before the policy matures is not easy to do and that there aren't too many open-ended funds. How does the company cope with these situations?

I think this may have been the situation 10 to 15 years ago. But now things have improved considerably.

Apart from playing the role of salesman, we also try to convince our policyholders of the importance of investment in life insurance products. Making a premature exit from any investment is never advised by experts.

Life insurance, all the more, is a long-term savings instrument, by which an individual tries to manage or fulfil his/her future requirements. As a financial institution, we try to convince people into waiting until they mature so that the policy can be fulfilled.

Actually it demands a great deal of commitment and discipline from a policyholder to complete the full cycle of investment in respect of life assurance.

But given the nature of unpredictability in our day-to-day life, it's a must and that's why we advise our sales professionals not to do any underselling or overselling.