Page 73 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 61

continue in the company but switch over to administrative duties. Many of those who left took their
business to others, and many who switched to administrative jobs found themselves all at sea. The
marketing arm, a crucial one for the company, was severely damaged. That the decision was wrong was
recognized after fifteen years when development officers were re-employed post-retirement to prevent
further erosion of business.

Development Of Unhealthy Market Practices: There were very strict norms about remuneration
to marketing intermediaries of insurance companies. It is common knowledge that in violation of these
norms, many companies indulged in paying higher sums to intermediaries through various means for
procuring business. Without getting into details, suffice it to say that authorities are now probing for
evasion of GST and IT. Demands run into a few thousand crores, and some companies have reportedly
paid up. The net effect, however, was businesses moved away from government companies.

Internecine Battles for Business: The companies were so used to battling with each other to get
business over the years that they did not heed what was in the market. The government did make some
moves to check the trend but did not succeed much.

Emphasis On Top Line: For decades, companies have focused more on the topline than the
bottomline. This was necessary during the pre-opening days and was sustained at that time, perhaps by
having a tariff for premium rates. Their continuation with the same thought process was untenable in
the new scenario.

These are but only a few of the causes which have led to a downturn in the fortunes of these
companies. Some of them have been the result of the companies themselves, some because of the owners’
actions and some due to changing market scenarios where, being government insurance companies, they
cannot tackle.

4. How is the Revival Possible?

Despite the situation as it appears today, these companies continue to have a lot of positives and can
be revived. There is considerable brand loyalty, a strong, committed workforce, a large pool of agents,
and an extensive office network. Their investments are robust. The efficiency of their operations can be
assessed by having a customer base running into crores. The government companies service more than
50% of the industry’s claims. Their claims disposal ratio, which is a percentage of the number of claims
disposed of during the year compared to the total number of claims registered, is very high and has been
in the nineties, which is indeed significant. Claims denied are among the lowest in the industry. This is
a notable feature which, unfortunately, is not highlighted much. These companies can, with some right
changes, be brought on track. But revival has to happen quickly before they get further weakened.

There can be a valid debate whether PSU insurance firms are indeed the Systemically Important
Financial Institutions (SIFIs) for the Indian market. The Financial Stability Board (FSB) refers to SIFIs as
institutions “whose distress or disorderly failure, because of their size, complexity and systemic
interconnectedness, would cause significant disruption to the wider financial system and economic
activity”. But the fact is that the IRDAI had earlier identified LIC, GIC Re and NIA as Domestic