LIC expects limited impact from IRDAI's proposed commission cuts, cites lower expense ratio

Life Insurance Corporation of India (LIC) expects to remain competitively positioned under the Insurance Regulatory and Development Authority of India's (IRDAI) proposed distribution reforms, while saying it has reduced its reliance on IDBI Bank ahead of the lender's proposed ownership change.

The insurer said its lower expense ratio and diversified distribution network would help it navigate the regulatory changes, which seek to reduce commissions, tighten expense limits and curb incentives linked to bancassurance sales.

LIC has also taken steps to protect its bancassurance business from any potential disruption arising from the proposed sale of IDBI Bank, one of its largest banking distribution partners.


LIC chief executive and managing director R Doraiswamy said the corporation's cost structure gave it an edge over competitors, even if other insurers managed to lower their distribution expenses.

"Anybody else reducing the cost of distribution alone will still have to do a lot of work to bring their overall expense ratio to be under that. So, we stand to be on a distinctly advantageous position, and will be closely watching the market as it unfolds," he said during an analysts' call.

On the proposed sale of IDBI Bank, Hemant Buch, executive director for marketing, bancassurance and alternate channels at LIC, said the insurer did not anticipate a substantial impact on business sourced through the lender.

IDBI Bank's share of LIC's bank-driven business has declined to around 20% from historical levels of about 50%, while its contribution to the insurer's overall bancassurance business has fallen to approximately 30% from nearly 40%, Buch said.

"While IDBI will continue to deliver value for us and remain a valued and esteemed partner, we do not foresee much depletion in terms of their contribution and overall impact on the volume of bancassurance-driven performance," he said.

Buch added that LIC was strengthening its distribution network by expanding relationships with other public and private sector banks, helping it reduce dependence on any single lender.

The government has recently approved the sale of its and LIC's stakes in IDBI Bank to the Fairfax Group.

Doraiswamy also said LIC's product pricing should not be assessed solely on the expenses incorporated into insurance policies. Insurers with greater reliance on non-agent channels or lower distribution costs would still need to bring down their overall expense ratios to match LIC's cost structure.

He said the corporation was also seeking to protect the interests of its insurance agents while engaging with the regulator on the proposed changes.

"We would like to protect the interest of our agents in as much as whatever is possible within the regulatory framework, and that is why we have given our specific recommendations on some areas which concern the points raised by the agents' groups as well. We hope that there will be a good discussion, and when the version of draft regulations are released," said Doraiswamy.

Buch reiterated that LIC's dependence on IDBI Bank had steadily declined over the past few years, even as business through other banking partners expanded.

"In last couple of years, in fact, dependence on IDBI has, in fact, moderated. What it used to be around 50% to bank-driven business and almost 40% to total bancassurance business of corporation, it has moderated to around 20% of total and 30% to bank. Further moderation also is, in fact, taking place despite the, in fact, using the fact that IDBI continues to grow, but then, in fact, we also continue to grow with direction coming from, in fact, other partners," said Buch.

IRDAI's proposed overhaul of insurance distribution has sparked opposition from insurers, banks, brokers and agents over its potential impact on commissions, revenue streams and existing distribution arrangements.

The proposed changes seek to lower distribution costs, impose tighter expense limits, restrict bank-led sales incentives and curb the bundling of insurance products with loans. The regulator's stated objective is to reduce mis-selling and make insurance more affordable for policyholders.

With inputs from TOI