Why LIC share price is ascending despite fall in SBI Life, HDFC Life, ICICI Prudential Life, other insurance stocks

Stock market today: Insurance company shares, such as those of SBI Life Insurance Co. Ltd, HDFC Life Insurance Co. Ltd, and ICICI Prudential Life Insurance Co. Ltd, fell on Thursday’s market session due to the Insurance Regulatory and Development Authority of India (IRDAI) concerns over the Bancassurance policy. However, the state-owned insurance giant LIC shares rose nearly 2 per cent in intraday dealings on Thursday.

HDFC Life Insurance Co. Ltd shares dropped 5.95 per cent to ₹640.25 on November 28 as of 2:54 p.m., compared to ₹680.75 at the previous market close. SBI Life Insurance Co. Ltd shares also fell 5.80 per cent to ₹1,418.20, compared to its previous close at ₹1,505.50. 

ICICI Prudential Life Insurance Co. shares fell during Thursday’s market session but are now trading 1.54 per cent higher at ₹691.30, compared to ₹680.80 at the previous market close on the BSE index.

The government-owned Life Insurance Corporation of India (LIC) shares also dipped in the early market session today, now trading 1.94 per cent higher at ₹934, compared to ₹916.25 at yesterday’s close. LIC share price rose around 2% during intraday dealings on Thursday. 

Why LIC share price surged despite fall in other insurance stocks?

On why insurance stocks are falling today, Seema Srivastava, Senior Equity Research Analyst at SMC Global Securities, said, “Insurance stocks are falling today as the IRDAI has raised concerns about insurance companies’ bancassurance business.”

“The insurance regulator has reportedly asked insurers to reduce their business by up to 50 per cent when they enter bank tie-ups. This is negative for insurance companies, and the market is discounting this fresh development,” said the stock market analyst. 

Advising investors to find opportunities in this challenging time, Seema Srivastava of SMC Global Securities advised medium to long-term investors to look at LIC shares as they would be the least affected by this move (if it gets implemented) due to the minimal business coming into the company through bank tie-ups.

Echoing with Seema Srivastava’s views, Anshul Jain, Head of Research at Lakshmi Shree Investment and Securities, said, “The move is yet to get implemented, and hence the impact will be short-lived but for a long-term investor, the IRDAI concern may impact. As LIC is the least exposure in the bankassurance business, chances are high that private insurance stockholders may switch money towards LIC shares.”

What is the Bancassurance business?

Bancassurance is an agreement between a bank and an insurance firm which allows these firms to sell their products to the bank’s client circle. This partnership between the bank and the insurance companies can be profitable for both the company and the institutional lender.

Banks, in exchange, earn additional revenue from this partnership by selling the insurance products, and at the same time, this gives the insurance companies an opportunity to expand their customer base without increasing their sales workforce. 

IRDAI’s mis-selling Concerns

Statements from the Union Finance Minister Nirmala Sitharaman and IRDAI Chairman Debasish Panda over potential mis-selling of insurance through banks have sparked concerns amongst insurance stakeholders.

IRDAI believes that any potential risk to banks can disrupt the insurance business and negatively impact policyholders and shareholders of publicly listed insurance companies, reported the news portal CNBC TV-18, citing people aware of the development on Thursday.

The insurance regulator has reportedly requested insurance companies to reduce the share of their business originating from banks to under 50 per cent of their total sales, as per the report.

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