Advantage LIC? How Budget Insurance Amendment Bill may benefit the PSU insurance giant

Budget 2023: It's that time of the year when the market is abuzz with expectations from the Union Budget. This time around, there are major changes expected in the insurance sector in the Union Budget 2023. According to reports, the government is likely to introduce a Budget Insurance Amendment Bill.

Experts say such a move will largely impact state-run insurance giant LIC.

Zee Business Managing Editor Anil Singhvi said that the passing of the Bill will be a gamechanger for LIC, which has a great network of clients and agents across the country.

He also said he would declare LIC the stock of the year if the Bill gets approved.

Echoing similar views, OmniScience Capital CEO and Chief Investment Strategist Vikas Gupta pointed out that LIC is already the largest player in the country's life insurance sector. With this new composite licensing regime, LIC could cross-sell its way to become the largest and most dominant player that would attract most clients.

However, he warned, that a lot would depend on how compelling LIC's product offering is and whether the state-run giant designs its value proposition well.

Here's what to expect from the upcoming Budget:

Lower capital requirement and its possible impact on LIC

Gupta believes that most of the clauses in the Budget Insurance Amendment Bill (BIAB) will likely increase competition for LIC, as they will lower the capital requirement for new entrants in the space.

Lower solvency ratio

According to Gupta, lowering the solvency ratio will allow all players in the sector to expand faster. However, he added, that it will also depend on market demand and the focus on growth. Solvency ratio is a key measure of profitability for insurance companies.

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Composite licence

Gupta is of the view that a composite licence will allow LIC to enter other insurance segments. A composite licence allows an insurer to operate in life and health segments via a single entity.

"This is not something that LIC is likely to really focus on in the near term", Gupta said. However, in the longer term, LIC could take advantage of the composite licensing scheme to enter the non-life business through an acquisition, he added.

SAMCO Securities Research Analyst Veer Trivedi believes that bigger players such as LIC would have their eyes on the composite scheme. He also said LIC has to also look at protecting its market share if not at increasing it.

"The composite scheme will not automatically transform life Insurers into big insurance players. General Insurance is a tricky business and requires expertise," Trivedi added.

General insurance and LIC

According to Zee Business Managing Editor, people trust LIC as the company has years of experience in the segment. LIC also has a good claim ratio and will largely benefit if it decides to get into general insurance.

Gupta of OmniScience Capital believes LIC’s entry into the segment will definitely lead to more competition for existing general insurers.

"Because of brand trust and comfort, many existing customers could switch their existing insurance plans to LIC... Since general insurance is viewed as an annual renewal product, while life insurance is viewed as a life-long one or at least a long-term product, the LIC clientele trusts LIC more and is likely to switch from other general insurance companies to LIC," he said.

He, however, also said that such things may happen only if LIC is able to offer favourable pricing or offer products combining general insurance with life and investments etc.

How can LIC enter general insurance?

According to Gupta, LIC could enter the segment through an acquisition, and could then use its large branch and insurance agent network to cross-sell general insurance to its existing client base.

SAMCO's Trivedi believes LIC might look to merge with the four PSU general insurance companies. In such a case, it will be able to use its consolidated distribution strength and benefit from cross-selling.

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