Life Insurance Corporation of India (LIC) is an iconic brand built over 70 years, synonymous with trust, security, and financial strength. With recent reports of LIC acquiring a sizable stake in a standalone health insurance (SAHI) company, the discussion around its potential entry into the health insurance domain has gained momentum.
While the move appears to be a natural progression for business expansion at a time when it core business of life insurance facing a phase of stagnation , it comes with both opportunities and challenges.
Strategic Rationale: Leveraging Strengths for Expansion
Health insurance is one of the fastest-growing segments in the insurance sector. Post covid , it got acceptance as an essential part of family & financial well being. LIC’s entry into this space through investment in a existing SAHI company , could be seen as an attempt to diversify investment revenue streams, leverage its extensive agent network, and enhance long-term profitability. With a strong financial backbone, an unparalleled distribution system, and a massive customer base, LIC has some undeniable advantages.
Experts are of the opinion that , if any entity can replicate its success in the life insurance sector within health insurance, it is LIC. The convergence of public purpose and commercial viability makes this move both strategic and necessary. In addition, given the trust deficit in the health insurance sector regarding claims processing, LIC , through its potential subsidiary , could bring much-needed credibility if it prioritizes transparency and policyholder-centric servicing.
Challenges: Different Ball Game, Different Rules
Despite these advantages, health insurance is a completely different business from life insurance. It requires a different actuarial approach, underwriting mechanisms, claims handling, fraud detection, and customer engagement models. While life insurance is largely about long-term commitments and predictable risk patterns, health insurance involves high-frequency claims, complex exclusions, and a higher degree of customer dissatisfaction due to claim disputes.
Unfortunately , LIC is not in a position to help the subsidiary in terms of expertise. The LIC officials expertise is all limited of handling critical illness rider related claims & handling a big volume of hospitalisation claim has never been their forte. The strengthening the manpower & system in this existing SAHI company would be necessary.
A major concern is whether LIC’s agents, who are already associated with other health insurers, will fully commit to selling LIC-branded health policies. Another worry is the risk of brand dilution—if the health company with “LIC” brand struggles with claim settlement issues, its long-standing trust in life insurance could also take a hit.
Health insurance is already a highly competitive space with established general insurance & SAHI companies such as players New India , ICICI Lombard, Bajaj Allianz, and Star Health, who have spent decades refining their operations. Even they face challenges in claims processing and customer satisfaction. Unfortunately , the SAHI company in discussion is yet to make its mark in this competitive domain , a real challenge for LIC.
The question arises: Would it have been a better strategy for LIC to start its own health insurance venture rather than acquiring a stake in an existing one? Buying into an operational SAHI company is an investment decision, but whether LIC should put its brand name at the forefront before stabilizing its processes is worth debating. People are of the opinion that LIC must desist extending the brand in beginning. Better , it plays safe.
Balancing Risk with Opportunity
Change is necessary for growth. If executed correctly, LIC’s foray into health insurance could not only strengthen its financials but also improve the overall credibility of the health insurance industry. However, success will depend on several factors:
- Training and Reorientation of Agents: Health insurance policies are intricate, and mis-selling due to lack of agent knowledge can lead to reputational damage. LIC must invest heavily in agent training and consumer education.
- Efficient Claims Handling: Trust in health insurance is often broken at the claims stage. LIC must ensure faster, more transparent claims processing to set a new industry benchmark.
- Selective and Strategic Underwriting: Given the complexities of medical risk, LIC needs to adopt robust risk management strategies and avoid the pitfalls of aggressive policy selling without due diligence.
- Long-Term Commitment to Customer-Centric Policies: Instead of purely focusing on market share, LIC should align with public health initiatives and wellness programs to create a sustainable and impactful health insurance model.
Conclusion: A Calculated Gamble
LIC’s potential entry into the health insurance sector is both an opportunity and a risk. On one hand, it brings brand strength, trust, and a massive distribution network. On the other, it faces operational and reputational challenges in an industry where claim disputes are frequent and customer trust is fragile.
Will LIC redefine health insurance standards, or will it struggle to adapt to an entirely different business model? Only time will tell. But one thing is certain: the move will reshape the industry and set a new precedent for how a legacy insurer transitions into a complex new domain.
The article is written by Prof. Manoj K Pandey, Associate Professor, Birla Institute Of Management Technology, Greater Noida.
(DISCLAIMER: The views expressed are solely of the author and ETHealthworld.com does not necessarily subscribe to it. ETHealthworld.com shall not be responsible for any damage caused to any person/organisation directly or indirectly)
