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This is a record year in terms of IPOs. The LIC problem has been around for some time. Can you make a record with the biggest Indian problem in history this year?
A lot of work has been done since the government announced the IPO. For an insurance company, calculating intrinsic value (EV) is very important and it’s something that has never been done and that was the biggest challenge. To make the VE, we needed software that was not available in India and had to be purchased in Singapore. The huge clientele and so many policies were the basic challenges. But the work is in full swing and DIPAM has put in place the bankers and legal advisers. We have started to draft the DRHP draft and once the financial statements for September are ready they will be integrated as well.
We’re seeing digital companies launch IPOs with just a few weeks of preparation. Can you give us the extent of your exercise?
We have a project management team of 100 people supported by bankers and DIPAM who take charge of all of this work. We have 250 products and their asset share needs to be assessed. The simple server capacity … Prior to March 2020, it was 300 terabytes for the 113 divisions and the disaster recovery system. It had to be increased to 1000 terabytes for operations and 1000 terabytes for recovery. All is done. We are confident to complete it during this fiscal year.
How much LIC itself would get from this IPO and how much would go to the government?
This is something the government will decide. It remains to be decided whether the capital requirement will be there for LIC. Finances will also include the consolidation of our subsidiaries such as LIC Housing, LIC MF and our international operations. The importance of this needs to be considered by the board as well and this will all go into the calculation as well.
What was the dominant thought that arose before the IPO?
We are considering how to change the distribution model to align with the regulations with discussions of 90/10 for participating products and 100/0 for non-participating products. At the moment, we are at 95/5. Maybe in the DRHP we can figure out whether we’re going to do it now or in stages or by a descent path. Our strength has generally been at par and it is again a strategic call that we need to see how to create shareholder value by selling more no-par. This is something that we will be working on over a period of time. The par is also good because it benefits the insured. But if shareholders feel that the non-peer gives them a better dividend or earnings in the future, that’s something we’ll be working on.
So how does your change of character into a listed entity make a difference for your policyholder?
There is also a part (of the IPO) which will be kept for the insured. For the first time, customers will also be reserved part of the shares. There are sixty million demat accounts in the country and we have 250 million customers; LIC’s IPO therefore has the potential to expand the entire capital market. If 3-4 new clients come to open a demat just for the IPO of LIC, it will not stop at LIC alone.
Does this mean that the makeup of the company is going to make a difference in the valuation that LIC gets?
No. This assessment is based on what we currently have. It should charge the same premium over the private sector because we are number one and we have the largest market share and in terms of volumes we are huge. Investors should also consider that there is a sovereign guarantee that has not disappeared. All of this should add up to the ratings not there for others. Since 1956, we have never used this guarantee which is extremely comfortable. We never asked the government to give us money.
Now you will be closely watched and analyzed. What changes for LIC in terms of approach to customers and policyholders?
In terms of customer engagement, nothing has changed. But in the future, there will be differences in regulations. Sebi regulations and listing requirements will apply and we will need to be aware of this and be aware that disclosures will be more prominent. Not that we haven’t disclosed before, but now in terms of regular disclosures, the frequency, quarterly results, analyst calls and ability to answer questions will be a major change. We now have a corporate secretary that we have never had before. Then there are the 29 policies of Sebi LODR which have been approved by the board of directors.
Insurers have also been among the most affected by the Covid. What was the impact for LIC?
Wave 1 and Wave 2 were both bad and we had a lot of death claims that we settled. Our regional directors got in touch with each tax collector or district magistrate who gave us the telephone numbers of the deceased. We used to contact the number to get details and settle complaints. It made a lot of noise about insurance. We have seen a lot of business because of this which will help us sell more plans eventually. We received 38,304 Covid claims amounting to 1,062.37 crore, of which we settled 38,290 claims worth 1,061.91 crore.
Now, digital seems to be the mantra of all businesses, including insurance. How do you see this changing your business?
I don’t see any threat because people still need to talk to someone, but digital is here to stay. After the second wave, we created an agent app called ANANDA that agents can use to call the customer for details and send them a link to complete the payment. It is therefore a phygital model. It is still evolving and we are thinking of the digital scenario of LIC but for the moment, it is the phygital that works. We have sold 2 lakh policies through this app. We launched it after Covid in March of last year. We still need agents to promote insurance.
When the market opens, it is obvious that the monopoly loses market share. Would it be difficult for you to maintain market share?
People asked us this question when the industry opened in 2004-2005 and we said that we will be able to compete in the market as well as anyone else. We are also stepping up digital marketing and bancassurance. Over the years, the loss of market share is only the result of other people’s growth, not that we are not growing. What we see this year is only a marginal thing and by the end of the year we will be able to overcome that. We try new products and we slowly get into non-conforming products. Training 1.3 million agents takes time and I think by Q4 we will be there and gain market share to levels seen at the start of the year.
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