Why LIC, the country’s largest insurer may never live up to its potential

Public sector companies have always been looked upon as milch cows by whichever party is in power. They might have been founded with the right intention post India’s Independence and certainly played their part in the country’s industrial development. But over the years, they have been wrecked by lack of accountability and most have been a drain on taxpayers. PSU banks lead this roll of dishonour where ministerial interference and favoured lending has bled many a healthy bank. The country’s largest insurer LIC hasn’t been spared either.

Over the years LIC has been increasingly forced to invest in public sector units just because that was the only way the government could have met its disinvestment targets. There was only so much that the open market could absorb and if you eventually would end up with a lemon in your portfolio, why would you invest? So, given that PSUs are the government’s fiefdom, it was convenient to transfer money from its left pocket to the right and pretend everything was kosher. And, now that things have come to such a pass, there is no option but to sell parts of the golden goose via a floatation. Disclosure at the country’s biggest insurer is flaky and its DRHP might just shed light on what all does its investment portfolio hold.

It seems sensible to list public companies or sell them outright for a premium valuation for capital expenditure than to raise resources for revenue expenditure. As it is, part flotation has been a miserable experience for those who have continued to stay invested in PSUs. The planned flotation of LIC promises to be no different. Like Coal India, post listing it might just get milked for dividends with minority shareholders not having much say. Coal India now trades at half its IPO price.

While Coal India has slipped despite being a monopoly, LIC does not enjoy that luxury. It has aggressive private players nipping at its market share and the very same story that played out in PSU banks losing market share to private banks could repeat here. No wonder, many investors are gung-ho on private insurers as a growth proxy. The notion of ‘brand loyalty’ and ‘trust’ enjoyed by government financial institutions went for a toss a long while ago with private players gaining and continuing to gain market share. It is ironic that the biggest insurer will end up losing market share in a country where there is no social security to speak of and where exists the dire need for rightly-advised saving products.