The Hindu Business Line : Wage revision in PSU insurers put on hold

WAGE increases for the public sector general insurance companies have been put on hold for this year as well, with the Government making pay hikes conditional on compliance to Section 40 C of the Insurance Act of 1938.

Section 40C of the Insurance Act caps management expenditure of the companies at 19.5 per cent of the gross premium collections. The expenses include wages, perks and rentals. In addition, sources said that there was also the impact of the Fringe Benefit Tax (FBT) introduced in the current year's budget.

Already most of the insurance companies are operating on management expenditure ratios way above the statutorily prescribed level.

The management ratios for the four PSU insurers — New India Assurance Company Ltd, National Insurance Company Ltd, United India Insurance Company Ltd and the Oriental Insurance Company Ltd — are currently estimated at anywhere between 23 and 25 per cent.

The FBT was expected to further escalate the management expenditure ratios, the sources added.

The unions had sought a 12.5 per cent wage increase. However, the General Insurers Public Sector Association (GIPSA) conceded only 8.5 per cent, retro effective from 2002.

None of the unions was prepared to accept this increase. But the Government, which holds the equity in the four companies, was unwilling to concede even this increase.

The sources said that the Government had taken the stand pointing out that even this small increase was likely to lead to a further deterioration of the management expenditure ratios beyond the existing high levels.

Consequently, the sources said that this year also promotions in the four PSU insurance companies were unlikely to take place. The sources said that in a bid to conform to the management expenditure ratio guidelines, the four companies have begun expanding into non-traditional sector, including rural insurance and retail business.

These businesses were attractive in view of the low claims potential.

Further, the sources said that all the companies which had made large profits in selling some of their portfolios of equity used them to further strengthen their balance-sheets and make large provisions for potential claims losses.

Besides, the sources said that the thrust was on expanding low claims business and containing claims ratio of over 100 per cent and reducing the reliance on investments as a source of profits. The focus was on making core operations profitable, they said.

As a result, all the four insurers have now virtually capped the growth in high claims portfolios, including third party motor insurance business.

They have taken the stand that the statute did not mandate them to accept the business since tariff increases to match the high levels of claims in the sector have still not been permitted. This was consequently impacting their efforts to make the underwriting business profitable.

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