The operational results for FY23 are out. The government insurers have shown strain on various fronts. Their solvency margin continues to be adversely affected. Profitability is a question mark. The market share of the four companies together has come below one-third, which is a definite psychological hit.
The market is showing a continuous increase in competition. To top it all, the owner ie., the government, has been giving out conflicting signals on the way forward. From outright disinvestment to mergers in various combinations, news and rumours have been floating around leaving the companies and their employees in a state of confusion.
Will they re-invent and thrive?
These are four companies which not long ago dominated the insurance sector. The government has one company in the life sector (LIC), four in the non-life sector, one reinsurer (GIC) and two specialised insurance companies. While LIC and GIC have been holding their own, of course with some erosion in market shares, the four in the non-life sector are in difficult straits.
Past performances
A small peek into the past would be useful to understand the performance of these companies and what could be done to revive them. Many may not be aware that these companies have been profitable for long and held a record for consistent dividends and increases in the share capital by way of issue of bonus shares. Their performance could very well compare with some of the best in the private sector. Insurance which was essentially urban centric and almost elitist, prior to nationalisation, was taken to deep interior rural areas, in a big way, by these companies. Each of the company has around 2000 offices across the country. Having physical offices even in these days of heightened online activity, has it’s own impact. An exercise was carried out through the years to open offices in the remotest places, catering to the local populace. It had a wonderful effect over the years.
A carrier of government schemes…
The government introduced PMSBY, a personal accident policy with Rs 2 lakh sum, insured for a very low premium of Rs 12 per person. It was almost entirely shouldered by these companies. The private insurers were near absent. The result of course was huge losses every year. Being government schemes with a social orientation, these companies bore it all. Similar was the position when many other socially oriented schemes were introduced.
Policies of national importance like reservations in recruitment or adherence to the tenets of the official language and so many others are done assiduously. Extensive training is a regular feature for government companies thereby creating a pool of insurance literate persons. This is not much seen in the industry now.
Losing trained man power
A plethora of causes has led to the current state of affairs for government insurers. A few important decisions taken over the years have had major deleterious effects. Things were going well with an integrated cadre of existing and new recruits being developed. This hit a road block and for two decades from 1990 onwards there was no fresh recruitment. Both government banks and insurers were hit by this policy, resulting in shortages at various levels. Once recruitments were started after this long interval, the companies went overboard and recruited large numbers, creating its own problems.
Yet another blow was a special voluntary retirement scheme that was implemented in 2004. A lump sum payment was given along with a handsome pension for lifetime. It resulted in a whole lot of trained talent exiting and joining the newly opened private companies, brokers and other intermediaries. The loss was to the government companies as the new private organisations got trained manpower on a platter.
Unhealthy market practices
There were very strict norms about remuneration to marketing intermediaries of insurance companies. It is common knowledge that in violation of these norms many companies indulged in paying higher sums to intermediaries through various means for procuring business. Without getting into details, suffice to say that authorities are now probing for evasion of GST and IT. Demands run into a few thousands of crores and some companies have reportedly paid up. The net effect was business moved away from government companies. They were so used to battling with each other for getting business over the years, that they did not pay heed to what was there in the market. The government did make some moves to check the trend but did not succeed much. The competition commission chose to treat them as independent companies despite having a single owner. They thereby effectively ensured that they could not join together to quote for business.
Emphasis on top line
For decades the companies had got into the habit of focusing more on the top-line than the bottomline. This was necessary during the pre-opening days and was sustained at that time perhaps by having a tariff for premium rates. In the new scenario, their continuation with the same thought process was untenable. These are only a few of the causes which have led to a downturn in the fortunes of these companies. Some have been the result of the companies themselves, some because of the actions of the owners and some due to changing market scenario.
Is redemption on the cards?
Despite the current situation, these companies continue to have a lot of positives and can be revived. There is considerable brand loyalty, a strong committed workforce, a large pool of agents, a big office network. Their investments are robust. Efficiency of their operations can be assessed by the fact that they have a customer base running into crores. More than 50 per cent of the claims of the industry is serviced by the government companies. Their claims disposal ratio, is very high and has been in the nineties which is indeed significant. Claims denied are among the lowest in the industry. This is a notable feature which unfortunately is not highlighted much. So, the answer to this question is, yes, they can be saved. With some right changes, they can be back on track. But revival has to be quick before they get further weakened. Many steps, small, big, short, medium and long-term are needed.
A level playing field
While the market processes cannot be changed, the government and the companies themselves can make changes. This would require a change in attitude. It should realise that these are commercial entities operating in highly competitive markets. Whatever is required to make them competitive has to be ensured. It is common knowledge that government organisations suffer from fear of the 3 C’s- CAG, CBI, and the CVC. It is not possible to take them out of their ambit. Steps must be taken to ensure that they come out of the feeling of fear.
As discussed earlier, being part of the government, these companies cannot handle some of the things happening in the market. In all fairness, the government ought to step in and provide support in all ways possible. Infusing capital when required will work upto a point. It has to go beyond that and find other methods too. One is to make use of the many government institutions requiring insurance. Prior to opening up of the sector all this was handled by the same government insurance companies. This one step, by itself, could bring a certain amount of stability to business volumes.
Merger of the PSUs
At the time of nationalisation, this model of four competing companies was thought of to instil a sense of competition. The model worked well at that time but has now outlived its utility. The four companies are similar in almost all respects. Combining them into a single entity would result in a very strong organisation which would be able to effectively tackle the market and grow. A look at the relative performance of a monolithic LIC and the four companies competing with each other in the non-life sector, all belonging to the government, would say it all. Further, many banks have been merged in the recent past fairly smoothly.
The government insurance companies may look to be in distress today, but if required steps are taken quickly, they can come out of the morass and become strong players in the market.
