‘State-run insurers’ new scheme lacks focus on profitability’

Chennai, Aug 2 (IANS) In an attempt mainly to protect its topline regardless of profitability, the four public sector general insurance companies are considering re-appointing retiring development officers and marketing executives on contractual basis, said officials. But the move has evoked a mixed response, including heart burns.

The proposed scheme would allow development officers retiring on or after March 31, 2016, to be re-appointed as business associates provided they procured a premium ranging between Rs 1 crore and Rs 2 crore based on their place of posting.

The business associates will be paid a remuneration of their last drawn basic pay, subject to achieving the business target.

If the targets are not achieved, the remuneration will be reduced accordingly. However, a minimum remuneration of 40 per cent of their last drawn basic pay will be paid.

They will also be paid volume allowance, conveyance allowance and profit incentive.

The scheme, however, does not talk about the profitability of the existing business and whether it is prudent to retain them at all.

Currently the business channels for the National Insurance Company, New India Assurance, Oriental Insurance and United India Insurance are development officers, agents, brokers, micro-offices and direct sales people.

“It is a welcome move by the companies. At an average each development officer will do a business of Rs 2 crore per annum. Each company may have a minimum of around 1,000 such officers. So the potential business to be retained within the fold is around Rs 2,000 crore per company,” S. Vasudevan, Secretary General, All India General Insurance Field Workers’ Association (AIGIFWA), told IANS.

On the other hand, some of the officials manning the micro-offices/one man offices are upset at the development. The micro-offices are manned by administrative staff-clerical/officers having an aptitude for marketing and also by development officers and those promoted from the development officer cadre.

“A development officer is serviced by a full-fledged branch. On the other hand we have to procure business and complete the documentation. Our remuneration is only our salary. Many of us do business equivalent or better than a serving marketing executive,” a clerk at a micro-office of a government insurer told IANS, preferring anonymity.

“The companies should also shift us to the Development Officer’s cadre. We are willing to abide by the terms and conditions governing that cadre,” he added.

“When the insurance brokers were allowed it was expected they would add value to the policy-holders and for the industry. However, a majority of them were like a glorified agent focusing on cutting the premium down by pitting one company against another,” a senior official of a government-owned non-life insurer, not wanting to be named, told IANS.

“The data provided by some of the brokers about a risk to be underwritten were at variance with the actual,” he said.

The economics of the business associates scheme has to be worked out in detail with the focus on profitability of the business sought to be retained, he said.

“There is a need for another round of VRS (voluntary retirement scheme) in the four companies to bring down employee cost. New recruitment across the cadres can be made to bring down the management expense ratio,” he added.

Industry officials pointed out the need to do the profitability analysis of each distribution channel and to wind up unviable ones.

“More marketing feet on the road are needed. The business associates scheme should be made open to all the retiring employees. There are many administrative staff who are now doing handsome business and have good contacts,” a long time employee of a government insurer told IANS.

“The scheme in the current format is like giving a chicken to a tiger that is already devouring a goat. Now the retired development officers are placing profitable business with private insurers and earn handsome commission while giving loss making business with the government insurers,” he added.

“The reported scheme seems to be basically for protecting the volume of business. Though there is an additional ‘profit incentive’ in the reported scheme, there seems to be no built-in control for rejecting bad business,” K.K. Srinivasan, former Member of the Insurance Regulatory and Development Authority of India (IRDAI), told IANS.

The scheme clearly shows that the branch/divisional/regional managers have failed to develop the necessary rapport with their corporate clients so that they are serviced directly even after the retirement of the development officers.

“So what happens to the business when the business associates attain the age of 65 when his/her appointment will be terminated,” Srinivasan wondered.

“That is for the then chairman-cum-managing director to manage. Perhaps there will be a business surrogate scheme. By that time those who are responsible now would have retired,” an official quipped.

(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)



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