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| Govt insurers look to revamp operations |
| Shilpy Sinha / Mumbai Nov 03, 2009, 00:58 IST |
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The aim is to lower losses from risks underwritten by them.
The four public sector insurance companies are in for a makeover as part of a drive to lower losses from risks underwritten by them.
The four, New India Assurance, National Insurance, United India Insurance and Oriental Insurance, are first dealing with legacy issues. They are reconciling the list of claims with those that have been paid but not reflected in their books.
“There are a number of cases in which insurers have paid the claims but provisions, some of which are in excess of the amount paid, are still sitting on the books,” said a source privy to the revamp exercise, being pushed by the Union finance ministry.
In addition, a business process re-engineering (BPR), which will include implementation of core insurance solutions and centralising claims’ settlement, is being been undertaken.
Business will be reorganised into divisions focusing on different segments — bancassurance, large companies and agency. Besides, a performance-linked incentive scheme for employees will be introduced.
As a precursor, the companies have started measuring performance of employees on a regular basis in terms of the business generated, the commission paid on the risk underwritten and the claims incurred. “Earlier, performance used to be measured only after annual accounts were finalised, which was sometime in July-August. But now, the companies are trying to measure performance on a monthly basis so that mid-course correction can take place,” said a source.
A finance ministry official said the move initiated by the four general insurance companies was like an exercise undertaken by banks in mid- and late 90s. But the government does not have to shell out capital here.
The ministry had recently asked public sector general insurers to implement core insurance solutions (CIS) in line with the experience of public sector banks, where the move has helped customers transact from across the country.
While Oriental Insurance, the smallest of the four, had implemented CIS, the other three would follow over the next 12-18 months, a source said.
New India, Oriental and United India appointed Boston Consulting Group, while National hired PricewaterhouseCoopers, for the restructuring. The exercise is expected to be over by September 2010.
“Technology is the cutting edge and we expect to implement 100 per cent CIS 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, large corporates, and agency offices, while Oriental has segmented the market into four groups — agency, corporates, brokers and bancassurance. On servicing claims, United India is strengthening settlement offices and speeding up claim settlement by third-party administrators (TPAs). Oriental is offering more business to TPAs who have given a good account.
“As part of re-engineering, we have added an element of incentive linked to the performance of branches which will be based on the number of claims settled and the number of claims incurred. Branches which have a low combined ratio will be given incentives,” Srinivasan added.
A combined ratio of less than 100 per cent indicates underwriting profitability on the amount placed at risk; above 100 indicates a loss. The combined loss ratio of the four companies is 123-130 per cent. The ration is calculated by adding the loss ratio and the expense ratio. The loss ratio is calculated by dividing the amount of losses by the amount of premium earned. The expense ratio is calculated by dividing operational expenses by the amount of premium earned. The expense ratio of general insurance companies is around 20 per cent.
“We appointed consultants as we were losing market share. The ministry has asked the other three insurance companies to implement CIS as we had already started the process in 2005. We expect to bring down our combined ratio by 10 per cent from 135 per cent at present,” said Oriental Insurance Chairman and Managing Director M Ramadoss.
“Re-engineering is a continuous process and we are implementing it in different stages. This will improve our productivity. Thereby, our bottom line will improve,” said New India Assurance in-charge AR Sekar.
“Ours is an IT-led business process re-engineering. We will initially roll out CIS in March 2010, the costliest among the four insurers, at around Rs 200 crore,” said National India General Manager RK Kaul.
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