FM PULLS UP STATE GICS ON PERFORMANCE

Finance minister Palaniappan Chidambaram has pulled up the four state-owned general insurance companies (GICs), which have rapidly lost market share to their private sector counterparts.

Over the past seven years since the sector’s liberalisation, the 12 private sector general insurers have cornered over 40% market share in the Rs 28,130-crore industry. They consistently gained 5% market share every year since they were allowed to undertake general insurance business.

Chidambaram had met the chiefs of the four general insurers--New India Assurance, Oriental Insurance, United Insurance and National Insurance—to review their performance recently. However, he was reportedly unhappy that despite a strong manpower base and national branch network, they continued to lose substantial market share.

“The finance minister sat patiently through the presentations made by us, and at the end gave his critical comments about our functioning,’’ said the chief of a state-owned general insurance company, requesting anonymity. The FM stressed that state-owned general insurers have to improve their performance, he added.

In last year’s review meeting, the FM held up as an example the performance of Life Insurance Corporation (LIC), which, he said, had given the private sector life insurers a tough fight to retain market share. This year, however, the FM was silent on LIC, as the behemoth had also seen severe erosion of its market share in 2007-08, said the insurance company chairman.

Oriental Insurance has lost 2% market share and is down to 13.7%; New India Assurance, the country’s largest general insurer, has seen its market share erode 1.35% to 18.75%.

Significantly, the launch of detariffing—where general insurers are allowed competitive pricing—was expected to benefit the public sector firms as they are in a much better position to offer competitive pricing due to their large balance sheet size.

“Detariffing, sought by the public sector players from the Insurance Regulatory & Development Authority to taken on private sector competitors, does not seem to have been the expected boon,’’ said GV Rao, a former chairman of Oriental Insurance. In one of the most expensive exercises among public sector companies, the four state-run general insurers engaged Boston Consulting Group and PricewaterhouseCoopers at a cost of around Rs 64 crore to chart out their future course of action.

The consultants have already submitted their reports and the firms are currently preparing to implement their wide-ranging recommendations. “However, even that is unlikely to provide too many advantages to these companies in regaining their market share,’’ said Rao.

Source: Sitanshu Swain
The Financial Express