AIIEA Standing Committee Secretary(General Insurance) Com.Gurumurthy was the key speaker at the state level study camp organized by the Kerala State General Insurance Employees Union(KSGIEU) at CSI Retreat Center, Kottayam, recently. The topic was “Public Sector General Insurance and Two Decades of Free Market.”
In his one and a half hour presentation Com.Gurumurthy dealt with various aspects of general insurance industry in India, beginning with pre and post nationalization periods. Prior to nationalization there were 106 general insurance companies and with the amalgamation, GIC and four subsidiaries were formed, he said.
With the introduction of liberalization policies in 1991, he said, a series of measures to open up the insurance industry began. The R N Malhotra Committee constituted in 1993, in its report recommended reduction of the government stake in the insurance companies to 50 per cent, through disinvestment. He said the struggle spear-headed by the AIIEA could delay the government efforts to open up the sector, for a decade.
Com.Gurumurthy observed that with the passage of the Insurance Regulatory and Development Authority Act in 1999, India abandoned public sector exclusivity in the insurance industry in favour of market-driven competition. This shift, he said, has brought about major challenges to public sector general insurance industry. The government was giving in to the incessant demands of foreign capital. The justification for opening up the insurance sector was the lack of penetration of insurance and non-availability of new products.
Analysing growth of general insurance sector, he said, general insurance penetration has stagnated at 0.60 per cent. As for the improvement of penetration in life insurance from 1.60 per cent to 4 per cent, he felt that it was due to general buoyancy in the economy.
With the opening up of the insurance sector, Com.Gurumurthy pointed out that lots of unhealthy developments started afflicting the sector. The de-tariffing resulted in “massive under-cutting” in the fire portfolio, to the extent of about 80 per cent. The delay in revision of motor tariff and “selective underwriting” by private players also were challenges faced by the public sector general insurance companies, he said. In the post de-tariffed environment, he said, the intense competition would drive down insurance rates, a development which could ultimately impact solvency margins.
Com.Gurumurthy felt that on the regulatory side, IRDA should take a professional approach in the matter of outstanding issues concerning solvency regulations, further liberalizing of investment rules as well as the enforcement of price tariffs in the general insurance sector. In the liberalized environment, he cautioned against potentially higher incidences of unhealthy market practices.
Com.Gurumurthy expressed satisfaction at the performance of public sector general insurance companies and said New India Assurance Company’s loss of Rs.421 crores, during the last financial year, was due to technical reasons. Natural disasters have adversely impacted the performance of the company having direct offices in Japan, Australia and New Zeland. He deplored the deliberate attempt to show the public sector in bad light, in the context of the developments in the New India. He said the performance of the four companies in the competitive environment was extremely good. The solvency margin of the public sector companies was satisfactory. He said the public sector companies were financially sound, with investment value totaling Rs.1 Lakh crore.
Over the years, the public sector general insurance industry might be making underwriting losses but the companies have huge investment income by which they have been able to cover up those losses and have been able to show reasonably sound balance sheet over the years, Com.Gurumurthy said.
According to Com.Gurumurthy, as India continues to revamp its infrastructure, the flow-on effects will ensure ongoing growth of commercial insurance. He suggested drastic alteration in the process-oriented approach in the matter of claim settlement through motor third party adalalth. The public sector insurance companies have adopted upgraded insurance solutions system, but that has also created technical snags and the expected speedy delivery of products has not materialized, he said.
He stressed the need to have a proper assessment of the asset base of the public sector general insurance companies, since the balance sheets of these companies reflect only the” depreciated value of buildings situated in metros and major cities.” Moreover, as the shares of these companies are not listed in the stock exchanges, there is “considerable hidden value” for these companies as the same is not reflected in the books of accounts. Excess amounts paid to tax authorities, in some parts of the country, and now being challenged in the tax tribunal courts, would also help some companies, if the cases are favourably settled, he felt.
He said, the four public sector general insurance companies jointly set up Third Party Administrator to check excess mediclaim bills by private hospitals. This move, which is expected to help insurance companies to control both health insurance premium and claims, he observed.
Com.Gurumurthy expressed serious concern about the GIPSA management’s attitude towards new recruitment of staff in the public sector companies. He said several thousands of employees had left the industry and lack of recruitment was seriously affecting the service at the branch offices. He said the Standing Committee meeting proposed to the held in September 2011, at New Delhi, would discuss the matter for further action.
He said, the AIIEA has demanded the consolidation of the public sector through merger of the four companies and the benefits of such a move had been explained to the government and a campaign among the public was also under taken on the issue.
In the context of opposition to the LIC and the Insurance Laws (Amendment) Bill 2008, AIIEA has opposed the government move and has placed its views effectively before the Parliamentary Committee that is scrutinizing the Bill, he said.
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