State Insurers Considering Recast, Consolidation

The Insurance Regulatory and Development Authority (Irda) cracking the whip on public sector insurance companies to bring down establishment expenses has got the management of the four state insurers looking at restructuring branches, consolidating and scaling down the seven cadres into five. The management is also considering introduction of a six-day week, in line with the operations of banks and the Life Insurance Corporation of India (LIC).

At the two-day meeting in Chennai on August 30-31, the General Insurers' (Public Sector) Association (Gipsa) initiated talks with employees' associations on the restructuring of the four state-owned insurance companies.

This is part of the exercise to bring down management expenses to 19 per cent as per the Insurance Act as opposed to the present level of 22 to 26 per cent. However, the Gipsa plans are yet to receive government approval.

The key cost component however, is the wage bill which constitutes 70 to 80 per cent of the management cost, company officials said.

Meanwhile, the management is looking at the position of development assignments given to branch and divisional managers, assistant officers and development officers. Given the fact that brokers, tied agents and corporate agents will be undertaking marketing functions, this will displace many employees at the four insurance outfits, who have been assigned development functions, said company officials. The management intends to restrict and rationalise the number of assignments to bring down costs.

Further, the management has also mulled the consolidation of offices by merging viable units with unviable units of the same insurance company in the first phase. Talks have also been initiated to merge branches of the different companies where performance is not viable.

Restructuring of unviable branches of the state-owned general insurance companies is the first step towards the proposed merger of the four entities.

The government has suggested the need to merge 10 to 15 per cent of the total 2,500 branches which are considered "unviable".

The ministry of finance had earlier told the companies that "merger is possible once the houses are put in order". The joint secretary, Ajit M Sharan, had stated that as per the market requirement, merger may take place subsequent to the merger of unviable branches.

The management has further suggested consolidation of cadres from the present seven to five, which would also help to bring down employee costs. Following the merger of branches, the employees would be redeployed into servicing clients or underwriting business.