LIC’s Struggles Outweigh Analyst Hopes; It Does Not Have To

Life Insurance Corporation of India is a name synonymous with dominance in India’s life insurance sector. Yet, this titan of the industry finds itself struggling to meet investor expectations, weighed down by structural inertia, evolving market dynamics, and an inability to adapt swiftly to changing customer preferences. 

Despite its commanding 35% market share in annualised premium equivalent and a vast agent network exceeding 1.4 million, LIC’s underperformance casts a long shadow over bullish analyst forecasts.

A prominent broking firm recently assigned a “buy” rating to LIC with a target price of ₹940, projecting a 20% upside from its March 27 close of ₹788. This optimism is echoed by 16 out of 21 analysts tracking LIC, who recommend a “buy,” with the average 12-month price target implying a near 25% upside.

The rationale? Analysts point to LIC’s rising value of new business, market share and potential VNB margin growth to 20%, driven by product mix shifts and distribution strength. 

However, the market’s verdict has been less forgiving. LIC’s stock has delivered -9% return since its ₹949/share IPO in May 2022, while private peers such as SBI Life (+45%), HDFC Life (+23%), and ICICI Prudential (+14%) have moved ahead during the same period. 

IPO And Since
LIC’s ₹210 billion IPO—the largest in India’s history then—was priced at what seemed like a conservative 1.1x its FY22 Embedded value of ₹53.9 trillion, compared to private peers trading at multiples of 3-4x EV. Yet, even this modest pricing failed to excite investors. The stock debuted at ₹867.20—below the issue price—and has struggled ever since.

The problem lies in LIC’s inability to deliver on the high growth expectations baked into its ₹6 trillion listing valuation. While private insurers have consistently outperformed on both operational metrics and stock performance, LIC has remained stuck in the past, relying heavily on legacy products and processes that fail to resonate with today’s customers.

Losing Its Edge
LIC enjoys a dominant position in new business premium, with a 35% APE market share—30% from individual policies and 54% from group plans. However, Q3 FY25 data reveals troubling trends: APE declined by 23.88% year-over-year, and November 2024 NBP plummeted by a third.

The broader insurance industry is shifting toward high-margin non-participating (non-par) and unit-linked products—a trend that LIC has been slow to embrace. While its VNB margin improved to 19.37%, thanks to an increasing share of non-par products at 27.68% of APE, the heavy reliance on lower-margin participating policies remains a significant drag on profitability. Par policies still account for 67.77% of LIC’s portfolio—down from 85.96% but far higher than private peers, where par products typically constitute less than 25%.

Private insurers have capitalised on these shifts with remarkable agility. For instance, SBI Life reported a VNB margin of near 26.8% in Q3 FY25 alongside a 71.2% surge in profit. HDFC Life achieved a VNB margin of 26.5% for April-December FY25, while ICICI Prudential maintained a VNB margin of 25.2%.

The Achilles’ Heel
LIC’s challenges extend beyond new business premiums to renewal premiums and persistency rates—key indicators of customer satisfaction and loyalty. In Q3 FY25, LIC’s renewal premiums grew by just 2.5% year-over-year to ₹664.25 billion, compared to SBI Life’s robust growth of 19.8%. Persistency metrics paint an even bleaker picture:

• LIC’s 13th-month persistency rate stood at 79.2%, while its long-term (61st-month) persistency was just 59.8%.
  In comparison, SBI Life posted rates of 88.5% (13th-month) and 66.2% (61st-month), ICICI Prudential achieved an industry-leading 89.8% and 67.4%, and HDFC Life recorded competitive rates of 86.4% and 64.3%.
• These figures underscore LIC’s struggle to retain customers—a reflection of its reliance on legacy processes and slower adoption of digital tools that are now standard among private insurers.

Renewal Premium Comparison (Q3 FY25)

Persistency Comparison (9M FY25)

Source: Earnings presentations and conference call transcripts

Legacy Issues
LIC’s underperformance boils down to three key structural issues:

1. Heavy Reliance on Par Policies: Participating products dominate its portfolio, limiting profitability despite efforts to increase non-par product share.
2. Digital Lag: Unlike private peers leveraging technology for customer engagement and retention, LIC remains constrained by outdated processes.
3. Persistency Weakness: Lower satisfaction (13th-month persistency) and loyalty (61st-month persistency) metrics reflect deeper issues in customer experience.

Changes Needed
For LIC to turn things around, it must first accelerate the transition toward high-margin non-par products, aiming to reduce par reliance below 50% within two years—a move critical for boosting VNB margins closer to peers’ range of 25-26%. Second, it must invest more in digital transformation, streamlining everything from policy issuance to claims processing. LIC must improve persistency rates as a top priority; targeting an 85% rate for the 13th month and a 65% rate for the 61st month by FY27. This would signal meaningful progress in customer retention.

Finally, diversification into health insurance—a potential new revenue stream—could help reduce dependence on traditional life insurance products while tapping into India’s growing demand for health coverage.

LIC stands at a crossroads where incremental changes will no longer suffice. While its vast agent network remains an unparalleled asset, it must be complemented with agility in execution and modernisation efforts if LIC hopes to reclaim its edge in an evolving industry landscape. For now, expectations of significant upside remain more hopeful than credible unless structural changes are decisively implemented with urgency.