100% FDI opens door for new insurers: LIC

With foreign ownership limits lifted and competition set to intensify, India's insurance sector is entering a new phase. In a conversation with ET, Life Insurance Corporation of India's CEO & MD R Doraiswamy discusses what the Insurance Amendment Act means, why insurance penetration is slipping, and how the state behemoth is expanding by focusing on the right product mix. Edited excerpts:What do you make of the recent changes to the Insurance Act, especially the clause that allows 100% foreign ownership?Two changes stand out: allowing 100% equity and enhanced regulatory powers. Both are in the right direction. If foreign ownership was a constraint for companies entering India, its removal opens the door for new players and expansion. When limits were raised from 49% to 74%, capital inflows were limited, so this move (100% FDI in insurance companies) could make a bigger difference. Stronger regulatory powers will also help protect policyholders. Overall, these are positive developments.With more players entering, has the market expanded enough or is it still about chasing the same customers?The total number of policies in force has not increased meaningfully. There has been churn, but market share gains are largely coming from taking over existing business. We are not even fully replacing policies that exit. The industry needs to focus on expanding the pie. If new players help extend coverage beyond metros into tier 2, tier 3 and rural areas, that will benefit the country.Insurance penetration has fallen to 3.7% from 4.2% over the past four years. Why is this happening?Penetration is premium as a percentage of GDP. If premium growth lags GDP growth, penetration falls, which is what has happened in recent years. While penetration matters, I focus more on the number of people covered. Expanding coverage is more important than improving ratios alone.The Economic Survey flagged high distribution costs as a reason for lower penetration. Do you agree?Distribution costs matter. Earlier, commissions were capped, but later the industry sought flexibility, leading to higher payouts in some channels. LIC has never sharply increased commissions, even as competition intensified. Life insurance involves frontline underwriting and due diligence, which costs money. It has always been a push product. That said, commissions across the industry have risen and need to be balanced.It has been three years since the expense of management guidelines came in. Is it time to review them? Regulations must first be complied with. LIC follows a strong governance framework. New companies may need a glide path, but policyholder and investor interests must remain central. Regulations need periodic review as markets evolve, and the regulator is already closely examining developments. We are continuously engaging and sharing inputs.Your investment yield has remained flat. How are you addressing it?Returns depend on market conditions. LIC is a long-term investor, but we must optimise returns while managing risk. Intergenerational equity is important since we manage policyholder funds. Asset allocation depends on cash flows and product mix. Higher non-par business requires more guaranteed-return investments.Non-par products now account for 36% of your portfolio. Has this changed your investment strategy?Non-par has risen from about 7% at IPO to around 36%. We do not set rigid equity targets. At least 50% goes into government and approved securities, but this often rises to 60-67%. Corporate bonds are a key component. Equity investments are selective, long-term and focused on quality. What matters is realised returns, as bonuses and expenses must be met.Your exposure to government securities is above the minimum. How do you see this?Government securities will remain important, especially as non-par business grows and guarantees need protection. Corporate bonds and other fixed-income instruments will also play a key role. For par business, equity exposure is needed but calibrated. The objective is to ensure assumed returns are realised and policyholders receive appropriate bonuses.ULIPs grew sharply in the December quarter, while term insurance remains small. How do you balance this?ULIPs were introduced in 2004. After the 2008 crash, they lost favour for some time. Recently, interest in market-linked investments has revived, supporting growth. We are leveraging this while remaining strong in conventional products. ULIPs are growing but still form a small part of total assets.What is the strategy on term and protection products?We are increasing focus on term insurance, both online and offline, though growth will take time. We have launched high-value protection plans. Non-par has stabilised around 36% and we are not forcing it higher. Margins have improved to about 18.8% for nine months and around 21% for the quarter, driven by product and channel mix.What is the status of LIC's plans to enter health insurance?We have not shelved the plan but are moving cautiously. We explored strategic investments and evaluated a few companies but did not find the right opportunity at current valuations. We have paused for now. This is a continuous process with no deadline.Are health insurers suffering in the absence of a dedicated hospital regulator?Yes. With that comfort, we could have considered opening a health insurance company. LIC is built on trust, and customer confidence is very high. We do not want that trust eroded by challenges in the health insurance sector. Any decision, whether to enter directly or lend our name, must fully protect the LIC brand.As the country's largest domestic institutional investor, how do you view equity markets?India is well placed in terms of growth prospects and macro stability. Geopolitical issues cause short-term volatility, but the medium- to long-term outlook remains positive. With stable growth and improving macro conditions, markets should do well over time.Are alternative assets like AIFs and gold ETFs part of your strategy?We are evaluating Alternative Investment Funds (AIF) and other alternative assets, but only to a limited extent. Incremental investments can go up to 5%. We have not invested in gold ETFs (Exchange Traded Funds) yet, but we are examining them. Anything permitted under regulations is continuously evaluated.

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