It is an established business maxim that incumbent leader sheds its dominance in an industry that ends monopolies by law.
LIC of India, which once covered whole nation against lifes contingencies, has consistently been ceding ground to new rivals in 18 years New Delhi unshackled business.On last day of 2018, premier insurer had a leadership change, with chairmanship of VK Sharma coming to an end.
During his tenure, insurance giant lost another 5 per cent market share, putting a question mark on model of a business that was created on an elaborate but expensive network of last-mile agency.In interim, private life insurers appear to have caught up offering more unlinked insurance products with commission of less than 10 per cent as LIC still relies on high commissions for agents, making its products more expensive.
Hence, erstwhile monopoly needs a revamped business model to wrest initiative back from more nimble private sector.LICs market share by way of adjusted premium equivalent has fallen from 53 per cent in FY16 to 48 per cent in second half of FY19, according to data collated by Insurance Regulatory and Development Authority and Life Insurance Council.If you have a market with 24 players, it is not possible for LIC to hold on to 100 per cent market share, said an LIC executive.
Holding on to 48 per cent market share in itself is a miracle after 18 years of opening up.LIC had written annualised premium equivalent of Rs 27,800 in FY16, which rose up to Rs 36,000 at end of 2017-18.
In same period, private sector insurers increased their share from 47 per cent to 52 per cent.
This is when SBI Life increased its share from 9 per cent to 12 per cent and ICICI Prudential Life retained its APE market share at 10 per cent in same period.
APE or annualised premium equivalent is a common measure of ascertaining new business sales in life insurance industry.The focus on annuity business has gone up and so APE comes down, said Joydeep Roy, partner, PwC.
While top line growth has gone up, it has been losing APE market share over last five years.An annuity is an insurance product that provides annual payment to buyer at regular intervals, usually fixed returns, after retirement.
LIC dominates annuity business with a 95 per cent market share.
About 20-25 per cent of LICs total new business is annuity.
LIC reprices annuity products intermittently, especially when rates move.Annuity products, by contrast, have huge risks, as they offer high return and cover life risk guarantee.
LICs market share has come own because LIC was been reducing returns on annuity products, said LIC executive quoted above.Companies such as Kotak and Tata AIA are focusing instead on regular premium products.
Companies with higher regular income products report higher APE growth.Sharma had tried to return to basics of training and building a fresh professional agency, not just depending upon older batch of agents, said Roy.
Market share was not focus, but building agency will show results in next CMDs term.
He stressed on technology for customer service.LIC should be worried about more than required share of annuity and pension products, said a former LIC executive.
All corporate pension plans and individuals choose LIC at time of retirement for high return.