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Wednesday, Dec 04, 2002

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PSU insurers await Govt nod to implement VRS

C. Shivkumar


THE boards of the four public sector insurance companies have cleared the voluntary retirement scheme (VRS) for development officers and some categories of clerical staff.

However sources said here that despite this clearance, a final nod from the Government was holding back the implementation of the VRS. The sources said that a final clearance from the Government would be required in view of the large financial implications. The financial implications are estimated to be in the region of at least Rs 400-500 crore for each of the four companies. The sources said that the final settlement would be on similar lines as in the case of the banking sector, depending on the number of years in service and the residual service period left.

As a result of this delay and the financial implications all the four public sector companies are expected to face an escalation in the management ratios in the current financial year. This ratio is measured as ratio of premium income. The sources said one of the major factors that could lead to an escalation was the fact that brokers are expected to begin operations from January next year. Consequently, the costs of business acquisition for all the general insurers are expected to undergo substantial escalation. This is because brokers fee ceilings have been fixed at 17.5 per cent of the premium collection. Business acquisition for the four companies - New India Assurance Company Ltd, National Insurance Company Ltd, United India Insurance Company Ltd and Oriental Insurance Company Ltd - are currently performed by the development officers.

Insurance companies had hoped of paring the management ratios close to the statutory ceiling of 19.5 per cent by cutting staffing and allowance costs, and through rationalisation of personnel within the industry. Staffing costs comprise a large chunk of their management expenditure.

But this was unlikely to take place in view of the fact that VRS proposal still remains to be implemented. The public sector insurance companies currently have management ratio of over 23 per cent and this was likely to escalate close to about 28 per cent, they added. One of the major reasons for this escalation was due to the fact that salaries of employees would still have to be incurred by the PSU insurers despite the fact that substantial business was likely to be generated through brokers, especially project-related business.

This escalation in expenditure, the sources said, was likely to have an impact on the solvency ratios of the companies. This additional expenditure, the sources said, follows an escalation in the claims ratios of all the PSU insurers and a reduction in investment income. PSU insurers have not been permitted to exit from motor insurance, since this is treated as statutory insurance. Claims ratios in the motor insurance sector are currently in the region of about 150 per cent for the four PSU insurers. Besides, they have also not been permitted to load tariffs beyond 100 per cent for high claims sectors.

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