The Hindu Business Line : PSU insurers revamp: BCG report in 6 months

Bangalore, Sept. 25 The Boston Consulting Group (BCG) has been given a deadline of six months for submitting its report on restructuring of the three public sector general insurance companies Oriental Insurance Company Ltd, United India Insurance Company Ltd and National Insurance Company Ltd.

High level sources said that the restructuring would revolve around improving underwriting profits of the companies. So far insurers have been focusing only on topline growth. Underwriting profits were pulled down by losses in liability covers – motor third party and medical liability covers. The consequent pressure on profitability was evident from the slim underwriting margins of barely 0.5 per cent. Insurers have been able to sustain their profitability only through non-core activities, particularly out of their investments. At least 45 per cent of their investments are parked in Government securities. Moreover, insurers recognise that sale of investments is not a permanent source of bolstering capital for meeting solvency. For the last financial year, the three insurers had each earned profits in excess of Rs 500 crore through equity sales.

The sources said that the BCG group would help the three insurers to restructure the operations so as to optimise costs and rationalise operations. This would help cut back administrative expenditure. The sources said that such a restructuring exercise was also likely to entail some level of delayering of the offices, and swapping or outright shutting down of branch offices in some areas where the competition was internecine. Once the BCG submitted its report, the three companies are expected to kick off their restructuring exercises in 2008.

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