PSU general insurers are suffering due to govt’s negligence

The good news is that the non-life insurance industry has crossed the mark of ₹1.39 trillion as on January-end, showing a positive sign towards the growth. If the growth story continues like this, then the industry is all set to clock the current fiscal at ₹1.7 trillion from ₹1.5 trillion as had been achieved by the industry in the last fiscal.

However, there is a flip side to the growth industry. The industry's growth this time is driven by private sector players as their state-owned peers have shown negative growth during the period under review.

The industry has crossed ₹1.39 trillion in April-January from ₹1.23 trillion in the year-ago period, showing a business growth of 13%.

State-owned general insurer New India Assurance, which is the country’s largest non-life insurer with a market share at 14.24%, also showed a negative growth in the month of January, as its business fell by 14% to ₹1,708 crore from ₹1,986 crore a year ago. It is despite the fact that the company has shown a positive growth in the 10-month period as its business grew by 5% to ₹1,9810 crore during the period from ₹1,8792 crore a year ago.

Among the remaining three state-owned general insurers, Oriental Insurance Company (8%) and United India Insurance (2%) have shown positive growth in January, whereas National Insurance Company’s business has dipped by 36% in the month to ₹1,104 crore from ₹1,732 crore a year ago.

Even though the state-run specialised non-life insurer, Agriculture Insurance Company, has increased its business by 13% in January to ₹437 crore, it has done very badly in the 10-month period between April and January as its business dipped by 10% to ₹6,087 crore during the period.

In contrast, the private sector players on the space have performed reasonably well during the period under review.

Country’s largest private sector non-life insurer ICICI Lombard’s business grew by 28% to ₹1,452 crore in January from ₹1,137 crore a year ago. Similarly. Bajaj Allianz’s business was up by 23% at ₹1,662 crore from ₹1,354 crore a year ago. Similar is the condition of almost all the other private sector general insurers.

It is alleged that as a result of MISP (motor insurance service providers) ruling, which caps automobile dealers’ commission for to 19.5% for sale of own damage (OD) insurance policies, private sector non-life insurers have started incentivising the car dealers through unfair means so as to keep their business growth intact. Being state-owned firms, the four PSU general insurers and the ones which are working as arms of PSU banks, are losing the car insurance business heavily to their private sector peers as they can’t indulge in wrong wayS to make money.

The matter has come to the notice of the sectoral regulator, IRDAI, too which has expressed its concern over the illegal practice. However, no action has been taken by the government on the issue.

The reasons for state-run general insurers acting as laggards are galore. Prominent among them being delay in appointment of top posts in the PSU general insurers. So much so that it took more than four months for the government to appoint a full-fledged CMD for New India Assurance. In a similar fashion, the appointment of regular CMDs at National and United also took considerable period of time for the government. Particularly, in case of the appointment of Girish Radhakrishnan as CMD of United took remarkable time as in his earlier assignment he was posted in London and it took time for getting all the clearances for him to assume his new office in Chennai. In absence of regular appointment of CMD, these PSU general insurers were being run by the directors who were acting as acting CMDs. We know it well as the acting CMD doesn’t have major powers to take crucial decisions.

Second prominent reason is the government’s backtracking on its promise of providing a sum of ₹4,000 crore to the three state-owned general insurers (Oriental, United & National) for their recapitalisation. The government had earlier promised that it will be providing the amount for recapitalisation of the three insurers so as to improve their solvency margin, which shows the financial strength of an insurance company.

But, nothing of the sort was announced by the interim finance minister Piyush Goyal while presenting the Union Budget for the next fiscal year on February 1. It has thrown cold water on the three insurers as they are groping in the dark in absence of recapitalisation amount. The head of one of the three general insurance companies told National Herald that what can one do if the government was unable to fulfil its own promise as recapitalisation can take place through the Budget only and next budget will be presented by the new government which is likely to happen by the middle of the current year. The problem was that the government has also initiated the process of merger of the three insurance companies so as to get the merger listed. It has further aggravated the problem of these insurers.

Of late, the global credit rating agency, AM Best has maintained the under review with negative implications status for the financial strength rating of C++ (Marginal) and the long-term issuer credit rating of “b” of National Insurance Company Limited (National).

The under review with negative implications, status has been extended pending the receipt of an expected capital injection by India’s government, as communicated by National's management, as well as the review of operating results for the financial year ending March 31, the agency said in a statement.

It is not for the first time the agency has downgraded National’s rating.

On August 17 last year, the ratings of National were downgraded, following a significant reduction in Nation’s capital position. The ratings were placed under review with negative implications pending the progress of initiatives to improve risk-adjusted capitalization. These initiatives are still ongoing, and the company’s management expects significant capital injections by India’s government. Therefore the under review with negative implications status is extended, it said.

True, the government has launched a host of state-run insurance schemes as part of Pradhan Mantri Jan Dhan Yojana and some of which includes Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Fasal Bima Yojana and Ayushman Bharat. However, the benefit of these schemes have been grabbed mostly by the private sector players. In the case of Ayushman Bharat, the companies like New India Assurance was yet to win the bid for a state for their scheme.

When it comes to Pradhan Mantri Fasal Bima Yojana, the state-owned insurers are the new entrants and hence they lack the expertise to run the scheme in an efficient manner, say the experts. Secondly, the government has made it mandatory that the claims under the scheme will have to be settled by the insurer, in case it was not reviewed and approved within the two-month period. As a result, the private sector companies are relying on drones to do the needful, for which the new set of regulations came in force since 1 December.

However, the PSU general insurers are still waiting for the final guidelines to come from the DGCA (director general of civil aviation) before they can even think of using drones. It has further resulted in the piling up of claims and the PSU general insurers are compelled to settle those claims without verifying them as two-month period is too a short period for them to do so.

This all shows that the government has turning a Nelson’s Eye towards general insurers so as to benefit the private sector insurers.