Why govt insurance firms posted such huge losses

Multiple reasons accounted for the losses, including manpower crunch and lack of clarity on the merger of National, United and Oriental, reports Namrata Acharya.

Illustration: Uttam Ghosh/Rediff.com

With the merger exercise of three public sector general insurance companies -- National Insurance, United India Insurance and Oriental Insurance -- going slow, vacancies are piling up.

According to rough estimates, in the officers’ grade alone, close to 600-900 posts are vacant since the last one year.

At the clerical and subordinate level, the staff shortage is around 12,000, said sources in the companies.

The impact is already telling on the financial performance of the companies.

In addition, at least two firms -- National Insurance and United India Insurance -- significantly lost market share.

While National lost market share from 10.78 per cent in December 2017 to 8.63 per cent in December 2018, United India Insurance came down from 11.02 per cent to 9.27 per cent over the same time span.

The three insurance companies have posted high losses in Q2FY19, given their premium growth reduced and provisions rose.

Multiple reasons accounted for the losses, including manpower crunch and lack of clarity on merger.

“Lack of clarity on merger was a reason for the premium to come down.

"Shortage of manpower was another reason.

"Further, the firms had to make huge provisions over third party motor losses,” said a senior official of the public sector general insurance sector.

Last year the government made amendments in the Motor Vehicle Act, 1998, which stipulated almost ten-fold increase in the minimum compensation for injury or death due to road accidents.

According to a senior official at a private sector general insurance firm, while higher provisioning norms apply to both private and public sector firms, the private sector companies have been more prudent in selecting the category mix.

For example, they remained cautious in exposure to riskier insurances such as commercial vehicle insurance.

For United India Insurance, loss (before tax, as after-tax figures were not available) in Q2FY19 was Rs 868 crore (against a loss of Rs 36 crore before tax in the corresponding period last fiscal).

For National Insurance, the loss was Rs 707 crore in Q2FY19 (against a profit of Rs 90 crore in Q2FY18).

Lastly, for Oriental India Insurance, the loss figure stood at Rs 240 crore in Q2FY19 (against a profit of Rs 200 crore over the corresponding period in FY18).

While the government has not put any official freeze on recruitment, there has been no fresh recruitment since February 2018 as the Union finance ministry advised the companies to put the new staffing plan on hold till the merger exercise was complete, according to a top official of a public sector general insurance company.

Notably, in the next two to three years, about 25 per cent of work force, especially in the clerical level is expected to retire.

Each year, every public sector general insurance firm recruits 200-300 new staff at the officers’ level, in general.

The recruitment at clerical and subordinate grades are on hold for the last four to five years due to cost-cutting measures.

“We will take up the matter of staff crunch with the government,” said a senior executive of National Insurance.

According to K Govindan, general secretary of the  General Insurance Employees’ All India Association, each of the State-owned general insurance firms need to recruit at least 3,000 clerical and subordinate staff.

Therefore, at the clerical level, the total staff shortage stands at close to 12,000.

In 2007-08, when the total underwritten premium of the four public sector general insurance companies was around Rs 16,831 crore, staff strength in grade 3 (clerical) and grade 4 (subordinate) was around 43,654, according to data from General Insurance Employees All India Association.

According to Govindan, in 2017-18, while the total underwritten premium rose to Rs 67,920 crore, the staff strength in the two categories reduced to nearly 33,386.

In 2018, ahead of the government announcing its plans to merge the three public sector general insurance companies, National Insurance had planned to recruit about 600 people at the clerical level.

However, the recruitment plan was put on hold on account of the merger plan, said people with knowledge of the matter.

As on March 31, 2016, the total staff strength of the four general insurance companies was about 64,130 -- with United India Insurance at 16,345; Oriental Insurance at 13,923; National Insurance at 15,079; New India Assurance at 18,783 -- according to data available with the Union finance ministry.

The fate of the merger of the three general insurance companies is also in fire, as it would depend upon the policy stance of the government elected in the upcoming general elections, said a senior official of public sector general insurance firm.

In the February 2018 Budget, the central government announced its plan to merge three public sector general insurance firms -- United India Insurance, National Insurance and United India Insurance.