IPOs: Game-changers in insurance industry

The public listing of insurance companies, which has finally gained pace now, is expected to make a difference to the rules of the game going forward.

Last week, HDFC Life Insurance filed its draft red herring prospectus with the Securities and Exchange Board of India.

This signifies increasing traction on the IPO front in the Indian insurance industry, which has 54 life and general insurance companies.

According to the prospectus filed with SEBI, HDFC proposes to dilute about 9.55 per cent stake and Standard Life will offload about 5.42 per cent through the IPO. Going by the embedded value, the size of the stake on offer in the IPO should be around ₹5,500 crore.

Last month, SBI Life had received approval for an IPO from the regulator; it will raise about ₹7,000 crore.

Needless to say, the successful IPO of ICICI Prudential Life Insurance, the first public issue in the Indian insurance industry, has been driving other big players who have been there right from the time the insurance sector was privatised as part of the economic liberalisation of the 1990s. ICICI Pru sold shares worth ₹6,057 crore thorough the IPO.

In the general insurance segment, GIC is all set to become the first to go public. The State-owned insurance major has also filed a DRHP. It is likely to mop-up about ₹10,000 crore. While the trend shows maturity of the insurance industry, it is also important for the larger impact on the valuations, corporate governance and policyholders’ interests.

Though most of the players claim transparency and are the under tight vigilance of the Insurance Regulatory and Development Authority of India (IRDAI), there are grey areas such as higher and ‘unhealthy’ commissions being paid to agents, mis-selling and repudiation or downsizing of claims.

A peep into the long history of penalties imposed by the regulator on different companies in the recent years proves the point that there is much to be desired in corporate governance and ways of doing business. Going public by an insurer will surely promote greater accountability and transparency under tight vigil by two regulators — IRDAI and SEBI.

The trust factor has always been a major factor in insurance and it has been the forte of Life Insurance Corporationall along.

Public listing will surely bring in more trust from a policyholder point of view and may augur well to broaden the penetration of life insurance which currently stands at just 3.86 per cent of GDP.

Providing a new investment avenue for retail investors in insurance not only helps capital mobilisation but is also a way of promoting awareness.