LIC Eyes Stake in Standalone Health Insurance Firm, Shuns Composite License

This strategic move comes as LIC recognizes the growing potential of the health insurance sector, particularly as medical expenses rise and healthcare costs remain underinsured in India.

State-owned Life Insurance Corporation of India (LIC) is planning to enter the health insurance segment by acquiring a stake in a standalone health insurance company rather than pursuing a composite insurance license.

According to sources familiar with the matter, LIC is interested in purchasing less than 50% ownership in a health insurance firm to gain influence in its management without taking on full operational responsibilities.

“LIC doesn’t need a composite license. Even if such a license is introduced, they will likely not opt for it. They are looking to acquire a stake in a standalone health insurance company where they can have a say in management,” a source said.

This strategic move comes as LIC recognizes the growing potential of the health insurance sector, particularly as medical expenses rise, and healthcare costs remain underinsured in India.

“The health insurance sector holds significant promise. Longevity is increasing, but so are diseases, and medical costs are rising. Currently, less than 3% of total healthcare expenses are covered by insurance,” added the source.

LIC’s Acquisition Plans for FY25

LIC’s managing director and CEO, Siddhartha Mohanty, had previously confirmed the company’s interest in acquiring a health insurance firm during the post-earnings call for Q1 FY25.

“Rather than set up a vertical for insurance, we felt it would be better to acquire a company, allowing us to start selling health insurance across the country,” Mohanty stated, indicating the company's preference for acquisition over launching a new division.

Currently, there are six standalone health insurance companies in India including Star Health & Allied Insurance, Niva Bupa Health Insurance, Care Health Insurance, Aditya Birla Health Insurance, ManipalCigna Health Insurance, and Narayana Health Insurance.

A new player, Galaxy Health Insurance, has also recently entered the market with regulatory approval.

Health insurance remains the largest segment within the general insurance sector in India. As of August 2024, health insurance premiums rose by 11.60% year-on-year, reaching INR 49,520.64 Cr compared to INR 44,372.26 Cr in the previous year.

The steady growth in this segment underscores its potential, particularly in a market where insurance coverage for healthcare remains relatively low.

Challenges in the Insurance Industry

In a recent event, LIC’s Mohanty highlighted the transformative impact of technologies such as AI, Big Data, machine learning, and cloud computing on the insurance industry.

These technologies have improved operational processes, enhanced customer experiences, and increased efficiency across the sector.

However, Mohanty acknowledged several challenges facing the industry, including data privacy concerns, workforce adoption of new technologies, and the high cost of implementing advanced technology solutions, which can affect profit margins.

Smaller insurers, particularly in emerging markets, may struggle to keep pace with technological advancements, creating a competitive divide within the industry.

“The rate of technological adoption varies across companies and regions. Smaller insurers may face difficulties keeping up with advancements, which can create a competitiveness gap. Additionally, with increased digitization, the threat of cyberattacks grows, making it crucial for insurers to protect their systems from these risks,” he said.

To address these issues, Mohanty suggested that insurers collaborate with technology providers to develop scalable digital solutions for smaller companies, ensuring innovation benefits the entire industry.

He also emphasized the importance of proactive cybersecurity measures such as real-time threat monitoring, employee training in cyber hygiene, and regular security audits to protect against cyber risks.

Mohanty added that digital customer onboarding and dynamic pricing could be significantly enhanced through the adoption of Insurtech solutions, helping insurers remain competitive in an increasingly digital world.

Stay tuned for more such updates on Digital Health News.