The Hindu Business Line : PSU insurers may go for branch-swapping

This exercise is on the lines of the public sector banks, which had merged some of their zonal and regional offices. The branch swapping would also allow some of the companies to have a presence in areas where they have none.

Bangalore , Feb. 11

AFTER banks, it is now the turn of the public sector general insurers to take a close look at their branches. They are planning branch swapping in a bid to trim administrative costs and reduce management expenditure.

However, the move is expected to kick off only after the completion of the voluntary retirement scheme, now under way in the four insurers - New India Assurance Company Ltd, United India Insurance Company Ltd (UIIL), National Insurance Company Ltd (NICL) and Oriental Insurance Company Ltd.

"Branch swapping is the next step of cost rationalisation," top officials of NICL said.

Besides providing the insurers more extensive presence in the country, branch swapping would also mean that some of the divisions would be merged to restrict costs.

Speaking to Business Line, Mr V. Jagannathan, CMD, United India Insurance, said, "Such a move will help maximise our premium income at lower costs." In fact, the high cost of premium accretion was one of the major concerns of some of the large insurers. Among major cost components are high rentals and a disproportionately high staffing against the premium collection in some regions.

The impact of these high costs were never felt in the past in view of the high return on investments, especially government securities. The mean yields have dipped form 11 per cent about three years to 7 per cent now. Besides, high underwriting losses had also resulted in escalating the costs of premium accretions, industry sources added. Part of these costs is reflected in the high management ratios of the PSU insurers, at 24 per cent.

But this year, there was a likelihood of a spike in the management ratios, because the four insurers have opted for one-time settlement VRS payments, as opposed to using the deferred payment route.

But the insurers said that the effects of this rationalisation would be felt only from next year as in the case of the provisioning norms adopted. The provisioning has already stared paying dividends to the companies. At least two of them have run up underwriting profits till December, the first time since nationalisation in the 1970s. Once the rationalisation is done, the management ratios would come down to the statutorily prescribed level of 19.5 per cent, the sources added, implying a reduction in the cost of premium accretions.

This would in turn imply a further improvement in the bottomlines of the four public sector insurers.