Public insurers may offer 17.5% hike in wages

The Government has agreed to meet the insurance employees' demand for a 17.5- per-cent increase in wages, though it remained non-committal on pension.
The Secretary General of the General Insurance Public Sector (Insurance Companies) Association, Mr A. K. Singhal, said “We have already offered a 17.5-per-cent increase to the employees.” Further discussions are due to held with representatives of the employees of the four public sector insurers on May 8, he added.
The Additional Secretary General of the National Confederation of General Insurers Officers Associations, Mr Vivek Saxena, said, “We will know what is offered only at the meeting next month.” Insurance employees have demanded a pension benefit as provided to the bank employees. Mr Singhal, however, ruled out pensions. He said, “Pension is not acceptable to the managements since it would weaken the balance sheets.”
Also conditions stipulated in the management agenda are not acceptable to the unions. They relate to compulsory retirement of employees, with no mention of any voluntary retirement scheme.
The last round of the VRS in the insurance industry resulted in the migration of skilled and experienced employees to the private sector. This time, the sources said. the managements were keen to avoid such mistakes.
So far five rounds of negotiations have ended in deadlock.
Unlike in the past, when the managements were represented by officers of the ranks of General Manager, the negotiations are expected to be handled directly by the Chief Executives of the four insurers - New India Assurance Co, United India Insurance Co, Oriental Insurance Co Ltd and National Insurance Co.
The sources said that the CEO participation in the wage discussions was prompted by the government which is keen to break the deadlock, ahead with reforms in the sector. The reforms included making the core business of underwriting profitable. Insurers are currently operating at negative underwriting margins with loss ratios as 120 per cent. This year the insurers are expected to make up the provision shortfalls of the past. Under Insurance Act of 1938, general insurers are expected to credit at least 50 per cent of their incremental premiums to technical reserves - Unexpired losses. The sources said that after these provisions are deducted, insurers also were likely to end this year with red-lined net underwriting incomes

Fire, marine covers to cost more

The premium on fire and marine transit insurance covers is expected to increase by 10-15 per cent following the recent incidents of fire in Bangalore, Kolkata and Delhi.
Executives at insurance companies said the recent incidents have increased the risks from fire, especially in case of warehouses and transit-related insurance. “Ultimately, premium is a function of claim. The increasing number of claims will lead to an increase in premium,” said Bajaj Allianz General Insurance head of underwriting T R Ramalingum.
“Storage houses and warehouses may see an increase of around 15 per cent in premium. Deductibles in marine will also go up after the recent incidents,” said Tata AIG General Insurance Managing Director and CEO Gaurav D Garg.
An increase in deductibles will result in companies and individuals having to shell out more to make claims. The two moves are aimed at minimising the losses arising from the fire portfolio.
Over the last few weeks, there have been two major instances of fire in Bangalore, including the one in Carlton Towers, a commercial complex, and today’s incident in the godowns of Gokaldas Exports.
In addition, New India Assurance Company has had to take a Rs 35 crore hit due to a fire at the Tughlakabad internal container depot. Other insurers are facing claims from traders whose goods perished in the fire. There was also a fire in a plastic market in Delhi though the scale of damage was not known.
In Kolkata, there were a large number of casualties in Stephen Court on Park Street, though insurers would get away in the absence of a cover.
Generally, in a non-life sector, property insurance covers losses from fire. In India, a majority of the general insurance policies, including property covers purchased by large companies, come up for renewal in April. To that extent, the damage would be limited, though there are several large companies, such as SAIL and Reliance, which have renewals later in the year. In addition, transit marine is insured through the year, depending on when the consignments leave. The term of this policy is 60 days.
Though premium rates depend on the nature of the risk insured, it is less than one per cent of the sum assured in most cases. In case of marine, cargo rates also depends on factors like nature of cargo, scope of cover, packing, mode of conveyance, destination and routes, and past claims experience

Public sector general insurers' savings-linked plans, the first casualty

Public sector general insurers' proposals to introduce savings-linked products have become the first casualty of the spat between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA).
Mr M. Ramadoss, Chairman and Managing Director, New India Assurance Company, said, “There are too many controversies involved in the proposal. We will wait till all the issues are resolved.”
In July 2009, the four general insurers had begun working on introduction of such savings-linked plans, marrying some of the concepts of life insurance into general insurance. Public sector insurers had borrowed the idea from the some of the large private sector insurers, in particular, ICICI Lombard's highly successful Health ULIP. Introduction of the products was at an advanced stage of discussions till the spat between the regulators broke out last week, sources said.
The proposal had involved issuing linked covers in the personal lines of business, either medical or household policies, the sources said. Such a policy was intended to offer risk cover as well as a lumpsum repayment at the demise of the policy.
Currently, all the PSU general insurers are already offering products such as householders' policy, to enhance customer comfort during repayment of housing loans. None of the four public sector general insurance companies though have savings-linked products.
Most offered are risk covers for either property or liabilities. Combination policies, the sources said, were designed specifically with the help of appointed actuaries as mandated by the IRDA.
The proposal also involved upgrading some risk covers into savings-linked policies, the sources said.
Bundling savings-linked covers into motor insurance products, particularly third party, was kept out.
However, some insurers had envisaged factoring in saving components in motor insurance products, particularly in private, personally owned vehicles. This was to help in customer retention and for automatic renewal of insurance with the same company at least for five years.
At the end of this period, the sources said, premiums could be refunded partly or fully.
Savings-linked covers were intended as close-ended policies. None of the proposed savings-linked covers, though, were envisaged to offer any assured rate of return.
Instead, the sources said, the corpus collected through such policies would be invested in Government or designated securities mandated by the insurance regulator.
The proposal had envisaged that returns on such investments would be passed on to the investors, they added.
However, such a product would automatically depreciate in value in the event of claims being made. This is because the claims would be netted from the cumulative payouts, they said.
The sources said that companies intended to restrict their combined ratios through the introduction of such covers. Combined ratios that included management expenses and claims were currently in excess of 120 per cent of the premiums collected.
PSUs stuck with high loss traditional products have been struggling to cut underwriting losses and turn their core business profitable.
Product innovation was seen as one method of complying with deadline prescribed in the statement of intent signed between the government and the PSU insurers in August 2009.
In addition, the sources said that they had also hoped to compete and contain market share losses.

Long-term insurance likely for 2-wheelers

In a move to reduce the number of uninsured two-wheelers plying on the roads, the General Insurance Council (GIC) is working towards introducing long-term insurance for motorcycles – possibly a three- or five-year policy.
Mr S.L. Mohan, Secretary General, GIC, told Business Line that a substantial percentage of two-wheelers did not have insurance as the policies were not renewed. Most agents do not follow up with the vehicle owners for renewal since the premium amounts are not significant – varying between Rs 600 and Rs 800, depending on the age of vehicle . Also the commission amounts on such premiums are small.
Insurers, on their part, do not push motorcycle policies aggressively because it is considered ‘small ticket' compared to car insurance, for example. Therefore, the onus for renewing the insurance policy rests on the owner of the motorcycle.
“We expect that by providing a long-term policy and offering discounts, a large percentage of uninsured bikes will come under the ambit of insurance, “said Mr Mohan.
According to the latest available data from Tariff Advisory Committee, about 2 crore two-wheelers were insured in 2007-08. Although there is no published data on the number of two-wheelers plying on Indian roads, close to 4.5 crore two-wheelers have been sold in the past seven years, according to the Society of Indian Automobile Manufacturers (SIAM). Each year about 75 lakh new two-wheelers get added to Indian roads; 84 lakh vehicles have been added so far this financial year.

Public non-life insurers’ employees to strike

Around one lakh employees of four Indian government owned non-life insurers will strike work for two hours March 31, demanding 40 percent pay hike and an option to join pension scheme. They claim they have “done well and the management should reciprocate”.All the unions in the four companies — National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited — called for a two-hour walk-out from work places preceding the lunch recess March 31, the last working day of the current fiscal.
The unions warned of serious action if their demands were not met.
“The four government owned non-life insurers have clocked a gross premium of Rs.18,222 crore up to February 2010 this fiscal, logging a growth of 12.21 percent over the corresponding period of the previous year. On the other hand, leading private non-life insurers have logged negative growth,” J.Gurumurthy, secretary of All India Insurance Employees Association (AIIEA), told IANS Thursday.
He said the wage talks are still at the level of general manager level of the individual companies, steadfast on their offer of 17.5 percent salary hike, made at Kolkata Dec 22 last year.
The Governing Board of General Insurers Public Sector Association (GIPSA) Feb 5 informed the unions that it did not find it possible to improve the offer.
After the rejection of the offer of 15 percent increase, the GIPSA came up with a revised offer of 17.5 percent.
The AIIEA had demanded 40 percent wage hike so that there is pay parity with that of the private sector.
“The chairman and managing directors seem to feel that it is not their responsibility to find a satisfactory solution to the wage demand of the employees and officers in consonance with growth, productivity and competitive environment,” Gurumurthy added.
He said wage talks were resumed in Life Insurance Corporation of India (LIC) after the unions rejected the 17.5 percent hike offered.

State-owned general insurers look to shape up

As part of a drive to curtail losses, the four public sector general insurance companies are going in for a makeover The four state-owned general insurers— New India Assurance, National Insurance, United India Insurance and Oriental Insurance — have undertaken a restructuring exercise to improve underwriting profits.
“We have set a target with the government saying how much would be the underwriting profit or losses. The need to reduce losses has been made clear to us. Therefore, we will be looking at reducing underwriting losses and will focus on departments that are making losses,” said M Ramadoss, chairman and managing director of New India Assurance.
As part of the restructuring, the four insurers — who have been dealing with legacy issues for the past few years — are reconciling the list of claims with those that have been paid but are not reflected in their books.
“There are a lot of cases in which insurers have paid the claims but the provisions, some of which are in excess of the amount paid, are still sitting on the books,” said a non-life insurance executive.
In addition, they have undertaken a business process re-engineering (BPR) exercise, which includes implementation of core insurance solutions and centralising the claim settlement process.
Business is being reorganised into verticals focused on different segments — bancassurance, large companies and agency — and a performance-linked incentive scheme is being introduced for employees.
As a precursor to this, the state-owned general insurers have started measuring the performance of employees on a regular basis in terms of business generated, commission paid on the risk underwritten and the claims incurred.
“Earlier, performance was only measured after the annual accounts were finalised, which was somewhere around July-August. But now, companies are trying to measure performance on a monthly basis so that mid-course corrections can take place,” said an insurance company executive.
This is akin to the exercise undertaken by banks in the 1990s.
During the 2009-10 financial year the finance ministry had asked public sector general insurers to implement Core Insurance Solutions (CIS), in line with the experience of public sector banks, where the implementation of core banking solutions has helped customers carry out transactions across the country.
While Oriental Insurance, the smallest of the four state-owned players, has already implemented CIS, the other three will follow suit over the next 12 months.
New India Assurance, Oriental Insurance and United India Insurance had appointed Boston Consulting Group, while National Insurance had hired PricewaterhouseCoopers for the restructuring exercise. The process is expected to conclude in the next six months.
“Technology is the cutting edge and we expect to implement the core insurance system by 2010. We are focusing on better underwriting practices by adding an element of incentive to performance,” said United India Insurance chairman and managing director G Srinivasan.
United India has divided strategic business units into bancassurance, motor dealer offices and large corporate and agency offices, while Oriental has segmented the market into four groups — agency, corporate, brokers and bancassurance. On servicing claims, United India is strengthening settlement offices and speeding up claim settlement by third-party administrators (TPAs), while Oriental is offering more business to TPAs which have provided it with substantial business.
“As part of our re-engineering, we have added an element of incentive linked to the performance for branches, which will be based on number of claims settled and number of claims incurred by the group. The branch with the lower combined ratio will be incentivised,” Srinivasan added. The underwriting performance of an insurance company is measured by its combined ratio.
A combined ratio of less than 100 per cent indicates underwriting profitability and better return on the amount placed at risk, while a ratio of more than 100 indicates an underwriting loss. The combined loss ratio of the four general insurance companies is hovering at 123-130 per cent.
It is calculated by adding the loss ratio and the expense ratio. The loss ratio is calculated by dividing the loss by the earned premium. The expense ratio is calculated by dividing the operational expenses by the earned premium. The expense ratio of the general insurance companies is around 20 per cent.
“We had appointed consultants when we were losing market share. The ministry has asked the other three insurance companies to implement the CIS, since we had already started it in 2005. We expect to bring down our combined ratio by 10 per cent, from 135 per cent at present,” said a senior executive at Oriental Insurance.
Insurers expect the re-engineering process to result in improved bottomlines. National India had undertaken an IT-led business process re-engineering exercise and is close to implementing CIS.
The ministry had initiated talks on a possible merger of the four public sector insurers, but the insurers themselves said that no opinion had been formalised, and that there was no pressure on them to finalise anything immediately.
“If there is disinvestment and the ministry decides that we should come up with an IPO, the concerns are whether all four companies will come up with the public offer separately or as one company. If at all there is a merger it will be driven by the IPO. Underwriting losses is only part of the discussion and merging the four PSUs will not ensure underwriting profits,” Ramadoss added.
In the last one year public sector players have stemmed the decline in their market share. Due to high discounts insurers had to suffer underwriting losses. PSUs retain 80-85 per cent risk while private players retain around 50-55 per cent risk.
PSUs with more elbow room in writing bigger risks dominate the corporate business. Though these players lack in customer service, they are confident of increasing their market share because of public confidence, financial ability and better technical expertise.
To bring down claims in the health segment, the four insurers are jointly forming a TPA, and have appointed KPMG as the consultant. KPMG has submitted its report.