LIC IPO to Boost Transparency, Governance; Moody’s

Global rating agency, Moody’s Investor Services, has opined that the LIC IPO would go a long way in ushering in transparency and governance in operations. One of the big objections that global investors had about LIC IPO was the lack of transparency about its decision making, its investment strategy and the quality of its debt portfolio. A public issue would mean greater transparency, more disclosures and in the process better value for investors.

In fact, Moody’s has gone a step further and said that the LIC IPO would not only force the other private life insurers but also the public sector non-life insurers to also adopt greater levels of transparency. For example, two non-life insurers saw their stock price falling sharply after the IPO in 2017 and they still quote way below their IPO prices. More transparency will bring about more favourable pricing for these insurers.

The influence of LIC cannot be underestimated. After all, in spite of nearly 25 years of private insurers in India, LIC still dominates the life market with 70% market share. That is the kind of market share that can exert a huge influence on the way other players in the industry behave. In fact, if LIC adopts better standards of governance, then all the other players will also have to adopt similar practices, according to Moody’s.

According to Moody’s, transparency was the missing link for government owned insurers. Many of them never bothered about getting to the core of underperformance as they never had to report. If LIC starts to get more transparent, then other insurers will have to automatically follow suit. This is likely to result in superior performance by the other insurance players in the Indian public sector space.

According to Moody’s, one way to ensure greater transparency and better business traction is to effectively leverage technology. By default, technology is a transparency enhancer. With more inflation available to customers at the click of a button, there will be more customers willing to take a knowledgeable call on LIC. Now, LIC would be able to leverage its massive distribution reach and network more effectively in a transparent set-up.

According to Moody’s the pandemic must been seen as an important turning point for life and health insurance companies. The pandemic has opened the market far and wide and the traction may have just about begun. What was missing was the transparency and hopefully, the IPO will infuse more transparency and better governance standards in LIC. At the end of the day, customers and investors could emerge winners in the process.

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