The productivity gains for LIC have come from the following. Digital efficiency has kicked in. Digital business is increasing. New product launches, especially on the non-par and then the bancassurance. What are the next leg of productivity gains coming from LIC?
Siddhartha Mohanty: In the next level, we will be totally digital, so that productivity also goes up. We are also into analytics and AI because we will move with time. Now, digital transformation does not mean only paperless. But beyond paper, whatever is required to grow the market, to sustain in the market, to stay competitive, all those things we are going to embrace at the earliest. So, those will also enhance our productivity.
The general view with a lot of marketmen is that LIC is still selling policies through the old school way, branch network, and agents. How much of the new policy is coming from pure digital and how much is coming from the old channels?
Siddhartha Mohanty: Pure digital is just beginning; it is less than 1% now today, but we are focusing more and more and these two plans we launched, which are also available through digital mode. Yuva Term, Yuva Credit Life, both through agent one can take and directly also digital mode through our site also one can take. In India, insurance is a push product. Now also, many people, unless you explain everything, there is a necessity of the agency channel and it will continue. Even in developed countries also majority is agent-pushed, though digital is there. Of course, here, we get 96% from agents; in other countries, they get 40%, 35%, 60% or something like that. It may not be 90%, but still, agency is a dominant channel and will continue. So, our strategy will be to focus on digital without compromising on the agency channel. Also, that provides a lot of employment. We have 14 lakh agents. Their family, everybody, depends on LIC. We are working on a strategy to grow the digital channel.
What is happening in the entire financial savings space? SIPs have started, banks are getting less liability and money is moving into stock markets. Could that be a long-term challenge even for LIC?
Siddhartha Mohanty: When you talk of LIC or for that matter any insurance companies, we compete within the domestic savings market. People have lots of avenues and opportunities to invest and the way the market is growing, retail investors have invested long back, and the way mutual funds every month are getting Rs 20,000 crore, where will they park the money? They will park in the market. But that will also be a challenge to all insurance company banks as well. So, my sense is there should be a good balance. The market should grow, but insurance companies, banks, and everybody has a role in the total economy. Insurance awareness has to go up because there cannot be any compromise on life insurance. People definitely will have a life insurance policy. Of course, they may choose from different baskets. They may not go for pure saving or something like that, they may go for pure term. But because of the market our ULIP is also going up. ULIP sales have grown 134% in Q1. So, we have to work on that.
But is there a structural headwind for the insurance sector because there was a time when insurance was more like a protection plus investment products. By default, whatever your pool of saving was, of that, more than 20% was directly and indirectly coming in insurance. And those tax advantages are no longer there at least at Rs 5 lakh plus. Is there a structural headwind now for the insurance sector in India?
Siddhartha Mohanty: I do not think so because people who take insurance, take it only for insurance’s sake. And tax benefits were also limited. So, the tax will not have much impact. People will buy insurance but which insurance product? Within insurance, the composition of the product line may change. Savings, term, annuity, ULIP, and other products. The composition may have some impact because of the market and preference of the consumers buying here. All those things will have an impact but as such, insurance will grow.
But the fact is the tax benefit on Rs 5 lakh plus insurance was taken away 24 months ago. Has that impacted that bracket of policy buyers?
Siddhartha Mohanty: For us, it was very negligible.LIC was less than 5% I think.
Siddhartha Mohanty: Very, very negligible. It did not impact much.
But the country is also preparing to move into the new tax regime. And the new tax regime means no exemptions. And that in a sense could also be a problem for LIC?
Siddhartha Mohanty: For the insurance industry, that will not be a problem because everything will be withdrawn. Housing loan benefits will be also withdrawn. The new tax regime means no exemption and tax will be rationalised. I do not think it will have any impact on any housing industry or insurance which were earlier getting tax benefits. Initially, there may be some impact but gradually people will adjust.
Two years ago when we met and we used to speak to some of your predecessors, the first question was on Adani, and the last question was on Adani.
Siddhartha Mohanty: It is a matter of time only. You see, we always tell the market because historically, LIC has never done any knee-jerk reaction to the market movement. We have a strong research team. We continue our research. We sometimes take a contrarian view. People object. After two to three years, they appreciate that LIC made a wise decision.
But have you booked profits in Adani stocks? Or are you still holding on to them?
Siddhartha Mohanty: We never made any loss.
But have you started booking profits?
Siddhartha Mohanty: At that time, we never made any loss. The share price has gone up, but book value wise, we never made any losses.
But you are not answering my question. Have you started booking profits in Adani stock?
Siddhartha Mohanty: We book profit in all stocks. This is not an exception. Let me be very clear to everybody. We book profit in every stock wherever there is opportunity. You take any name. We are person or company-agnostic.
But are you looking at increasing your aggregate commitment to equities for FY25?
Siddhartha Mohanty: Every year we invest in equity. Last year, it was Rs 1.35 lakh crore. This year, it will depend on market movements and the market situation.
So, the number could be in and around last year’s number?
Siddhartha Mohanty: We have the objective of at least some positive impact.
Health insurance, something where you have said that even if composite license rules are not changed, LIC will venture into it. Could that be game-changing for LIC?
Siddhartha Mohanty: We now observe there is a lot of scope for health, indemnity health. We are already in health insurance. We are selling fixed benefit products but indemnity health which other GIC companies are selling, standalone health insurance. In that space, there is a lot of scope. Most LIC agents are selling those health insurance products. They are my agents because they can sell one life, one health, one non-life. So, they are selling. So, that advantage is there with LIC. The distribution channel is already ready.
The only thing that we have to think of is how to grow organically or inorganically. We see that if we do it ourselves, it will take a lot of time, experience, energy, and cost. So why should we not have a plug and play into something that is there readymade, have a good stake and enter into the health space. We are in life, accident. Entering indemnity health will be a total game changer. We are now exploring possibilities.
But would you be looking at buying a PSE or a state-run insurance company or a private company will also be considered?
Siddhartha Mohanty: No, standalone health insurance, only private. Standalone, only private.
So you will have to buy a private health company.
Siddhartha Mohanty: Yes, yes.
The government has consolidated the banking sector. Three large banks and then everything has come under the umbrella. Do you think the same needs to be done in the insurance sector? Maybe just two large players?
Siddhartha Mohanty: That government will decide.
But do you think it makes sense?
Siddhartha Mohanty: The government will examine and take a call at an appropriate time.
LIC is one of the cheapest insurance stocks anywhere in the world. I was looking at the number.
Siddhartha Mohanty: Undervalued.
Undervalued. Why do you think it is? Do you think markets are not realising the potential of LIC?
Siddhartha Mohanty: So, many factors are there. But gradually people are showing interest and it is going up. So, in coming days, all other factors will be taken care of.
How do you see FY25 for LIC being different from FY24?
Siddhartha Mohanty: There will be positive growth. We are aspiring for double-digit growth in FY25 and we will live up to the commitments we have made post-listing. Those will be achieved. We are sincerely working on that. On all fronts we are working sincerely.