PSU general insurers grapple with bloating expenses

Groping with high management costs, the four PSU general insurers — New India Assurance, National Insurance, Oriental Insurance and United India Insurance — are betting on an increase in premium collection to offset high exposure ratios.

The average share of management expenses at the firms has shot up to 24% of gross direct premium collections, much over the stipulated limit.

Under Section 40C of the Insurance Act, the ceiling for management ratio is fixed at 19.5% of the gross direct premium collection. The management ratio is a prescribed cost cap on wages, dividends and commissions. Both the insurance regulator and the finance ministry have been pursuing the insurers to bring these costs down to a comfortable level.

The top brass at the companies admit having high management costs. V Ramasaamy, chairman and managing director, National Insurance told DNA Money, "The management ratio is almost 21% for us and we have been trying to contain it at all costs. But, with fixed costs being almost 85%, there is little that can be tweaked around with 15% of the variable cost. The only way to bring down the cost would be by increasing premiums." He added: "In 2007-08, the decline in premium rates was lower than anticipated, down by almost 60-70%."

National Insurance had appointed PricewaterhouseCoopers as consultant to revamp its process and improve operations. As part of the recommendations from PwC, we are targeting 25-30% growth in health insurance as part of our retail initiative. Various such initiatives would include selling cheap flat and housing insurance at discounted rates for which we are preparing a sales campaign. The company has to look at all avenues to drive higher premiums, he said.

A jittery stock market has added to their woes as investment income, a major contributor to bottom line, has been affected.

Analysts say PSU majors may not feel the immediate heat on expenses like their private counterparts. But, with the complete opening up of the sector and full deregulation, every expense may prove crucial in the coming months.

Source: Nandini Goswami/ DNA MONEY