While public sector behemoth Life Insurance Corporation of India (LIC) has been witnessing a fall in individual new business, it is aggressively lapping up risky group business to boost its topline. During April-September 2015, LIC’s new business premium from group insurance business stood at Rs 27,294 crore, a growth of 34 per cent compared with Rs 20,314 crore. Group insurance business constituted 70 per cent of the new business premium underwritten by LIC during the six months ended September 30 and helped it clock a growth in topline. However, the number of group policies sold by LIC declined by 18 per cent to 14,014.
Life insurers offer products such as gratuity, leave encashment, superannuation, group saving linked insurance, group credit life and group term insurance products to companies for their employees. While group term life and group credit life insurance are profitable, leave encashment, gratuity and superannuation are loss making as insurers have to maintain a solvency of 4.5 per cent of the fund size. As a result group insurance business offers low margins or ends up in losses.
During the six months ended September 30, 2015, LIC registered a fall of 11 per cent in individual first year premium on an annualised premium equivalent basis at Rs 8,491 crore. Individual adjusted first year premium on (APE) basis is an international formula that gives full weight to regular premium, but takes into account 10 per cent of single premium.
LIC’s individual first year premium on APE basis was Rs 9,553 crore during the six months of the last year. However focus on single premium policies and group insurance business boosted the topline of LIC. The public sector insurance giant had a total first year premium (individual business and group business) of Rs 39,162 crore, a growth of 9 per cent during the six months of the financial year.
A top official of LIC attributed the growth in group business to the brand image of LIC but refused to give any details.
Private life insurance companies registered 50 per cent growth in group insurance to Rs 7,451 crore during the six months ended September 30, compared with Rs 4,957 crore during the same period of last year. Among private life insurers, HDFC Life Insurance was the market leader in group business with a new premium of Rs 1,188 crore, a growth of 45 per cent during the six months of the financial year, ICICI Prudential Life occupied the second position with a new premium of Rs 1138 crore, a growth of 199 per cent. SBI Life Insurance saw its group premium grow by 69 per cent to Rs 1020 crore.
Says a top official of a private life insurer, "Group business is extremely competitive as a result insurers are not able to recover management expenses and the capital cost. Insurers have to maintain 4.5 per cent of solvency capital of the fund size. But there is a pressure on topline, therefore insurers continue to focus on group business."