• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources

Group Sites

• The Hindu
• Business Line
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

C. Shivkumar

Industry sources said that if development officers were also included, the social sector interventions by the Government would be impacted adversely, especially rural insurance covers.

Bangalore , Jan 6

THE inability of insurance intermediaries to penetrate the non-metro and rural markets in the country has provoked the Government to adopt a restrictive voluntary retirement scheme (VRS).

The VRS notification has completely kept out Class 2 officers from all the four public sector insurance companies - the New India Assurance Company Ltd, United India Insurance Company Ltd, National Insurance Company Ltd and Oriental Insurance Company Ltd. This category of officers includes development officers.

Industry sources said that if these officers were also included, the social sector interventions by the Government would be impacted adversely, especially rural insurance covers. This was especially in a situation where most of the brokers were focussing their business only in the urban and metro districts. Besides, the sources added, that most of the brokers were heavily weighted in favour of the private sector companies. This was in view of the better incentive commissions paid out by the private players.

Top managements of the four companies, the sources said, expected the response to the VRS scheme to be reasonable.

In fact, employees who had opted for the pension schemes are expected to prefer the exit route through the VRS, the source said. Only about 15 per cent of the employees have opted for the pension scheme, the sources added.

But the severance package on offer by the insurance sector is slightly better than the banking sector. The severance package being offered is at the rate of sixty day's salary for each completed years service or salary for the remaining years of service, whichever was lower. But unlike the banking sector, where there was a cap of 60 months, there are no upper limits.

The catch was in the interest component of the payments to be staggered. The four PSUs are obliged to make the settlement only to the extent of 50 per cent and the remaining amounts could be staggered over a period determined by the respective boards of the companies. The public sector banks had settled part of the payment in the form of five-year bonds with coupons of 10 per cent, payable on a half-yearly basis. These bond issuances were treated as part of the subordinated debts of the banks. Insurance companies, the sources said, were unwilling to offer such high interest on the staggered component, especially since yields on five-year securities are barely 4.5 per cent or less than the term deposit rate.

Further, the sources said, there were also issues relating to the treatment of the staggered payments. Insurance companies, the sources said would ideally prefer that the liabilities be treated as part of the capital as in the case of the banking sector. They are accordingly expected to approach the Insurance Regulatory and Development Authority for the purpose. Yet, the sources added, that such an issue would arise only in the event of an "overwhelming response." All the four insurers have already made large provisions for such a potential liability. Only if the response was larger than expected would they need to resort to stagger the payments, the sources added.

For the Unions, however, the VRS notification has come as a New Year shocker. Some of the unions are already beginning to feel nervous in anticipation of the large impact. As a result, they have opted to have a check off, before the conclusion of the VRS. A check off is a method of employees' declaration of their respective union affiliation.

More Stories on : General Insurance | Manpower

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Rupee appreciation might benefit

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line