LIC’s Health Insurance Ambitions: A Deep Dive
The Life Insurance Corporation of India (LIC), a financial behemoth, is poised to make a significant move into the health insurance market. This potential expansion has sparked discussions about its potential impacts, both positive and negative, on the insurance landscape in India.
The Plan
LIC is reportedly planning a major acquisition, likely a substantial stake in an existing health insurance company such as ManipalCigna, signaling its intent for a full-fledged entry into the sector. There’s also speculation about a “composite license” that could permit life insurers to directly sell health policies, although initial discussions suggest this may be limited to private-sector insurers. Regardless of the specific approach, the prospect of LIC entering the health insurance market raises several important questions.
Initial Steps
If LIC fully commits to health insurance, the initial phase will likely focus on setting up the business and developing a deep understanding of the marketplace. Health insurance is considerably more intricate than life insurance, necessitating specialized skills and infrastructure. LIC will need to build expertise in product design, actuarial calculations, and relationships with healthcare providers like hospitals and clinics. Notably, health insurance claims volume is substantial, so efficient claims processing systems are essential.
Potential Benefits: Increased Penetration
One of the major advantages of LIC entering the health insurance market would be enhanced penetration. With its formidable distribution network which includes 14 lakh individual agents, 85 banks, 85 corporate agents, 309 brokers, and 154 insurance marketing firms (IMFs), along with thousands of common service centers, currently utilized for selling life insurance products, this network could become a powerful channel for selling health insurance policies as well. Consumers may find it convenient to buy both life and health insurance from the same agent.
Moreover, LIC has opportunities for innovation, such as “Combi products” that combine life and health insurance. Offering competitive pricing and a broad range of coverage could cause a substantial shift in the industry. For example, a single policy providing ₹50 lakh life cover and ₹5 lakh hospitalization cover. If LIC could offer them at competitive prices due to their massive scale, we could see a sea change in the industry.
Industry Concerns: Cross-Subsidization and Regulatory Stability
Not everyone welcomes LIC’s potential expansion. General insurance companies and standalone health insurers have expressed concerns about allowing life insurance companies to sell health policies. Their primary concern is cross-subsidization.
LIC, due to its highly profitable life insurance business, could offer health insurance at lower premiums by allocating life insurance profits to subsidize health insurance products. Some competitors worry that this could trigger a price war, diminishing their profit margins.
However, general insurance companies in India already sell a range of policies, including health, motor, and travel insurance, and have been cross-subsidizing these without major disruptions. This suggests that cross-subsidization could potentially result in lower prices and increased competition.
Another concern relates to regulatory stability.
Prior to 2016, life insurers in India sold indemnity-based health policies. However, regulations changed, restricting life insurers to selling only fixed-benefit policies (such as critical illness policies that pay a predetermined lump sum). Reversing this policy after just a few years might seem unfair to investors.
The potential scenario where only the composite license is not granted would require LIC to operate like any other health or general insurance company. While the distribution network would still stand, the additional benefits of bundling health and life insurance or leveraging cross-subsidization might not materialize completely.
Conclusion
LIC’s potential move into the health insurance market is a significant development. While it holds the potential to improve insurance penetration and increase consumer benefits, it may also raise industry and regulatory challenges. The outcomes of the shift remain to be determined as LIC moves forward in this venture.
