State non-life insurers to shut 400 offices

State non-life insurance companies intend to close down 400 of their 4,000 branches across the country to decrease overheads and utilise the services of insurance brokers.

At a time when private insurance companies are increasing expanding their network directly or indirectly, state insurers have decided to withdraw from unprofitable markets by closing or merging branches.

The ongoing voluntary retirement scheme has attracted about 5,000 applications, of which over two-third are officers and executives, with one-third applications from Class III employees.

The four state insurers -- The New India Assurance Company, National Insurance Company, Oriential Insurance Company and United India Insurance Company -- admit that the VRS will have an impact on individual companies' operations.

"As this will impact companies' decision-making process, we intend to invest more on information technology," said senior insurance officials at a leading state non-life insurance company.

At the same time, the move to cut down the number of branches by 10 per cent stems from the introduction of intermediaries like brokers and third-party administrators (TPAs), which said insurance officials works out to be a cheaper proposition than having one's own full-fledged branch.

"We'll close down branches based on parameters of cost, profitability and low growth," said company officials. State insurers intend to merge non-viable offices where the premium income is less than Rs 75 lakh (Rs 7.5 million) and costs are in excess of 25 per cent, said senior officials.

Closure of unviable branches is part of the action plan in line with government objectives to restructure and revamp operations to push up performance and meet government objectives in terms of curtailing administrative costs to 19.5 per cent.

With the exception of New India Assurance Company, the management ratio of the other three companies ranges between 21-22 per cent.

National Insurance Company chairman-cum-managing director H S Wadhwa, who also heads Gipsa (General Insurers' Public Sector Association of India), said the four companies will have to undergo a total restructuring and re-designation of officers, bringing down the present four-tier system to three.

According to senior industry officials, closure and merger of branches will result in re-location of employees. The management has thus sent out feelers to the personnel to take advantage of the ongoing VRS as there is not likely to be a second one.

Even as public sector banks have applied to the government to permit them to offer a second VRS, the centre has failed to respond to their demands.

An internal human resources working group of the four state insurance companies will meet in Mumbai on Monday to work on the re-organisation of manpower in light of the VRS.

The severence package opened on January 1 for the Class I and Class III employees, who have been given 60 days to apply.

To date, about 5,000 employees have applied for VRS, against the expected 7,400, according to industry figures. Many more are expected to opt for scheme, which offers two months salary for every completed year or total salary for the remaining number of years left in service, whichever is less.

The four insurance companies have set the minimum eligibility limit of 40 years and 10 years of service for the VRS.