Four state-owned general insurers ?New India Assurance, Oriental Insurance Company, United India Insurance and National Insurance Company- have embarked upon a restructuring exercise, considered the most expensive among government companies.
They have appointed global consultants, Boston Consultancy Group (BCG) and PricewaterhouseCoopers (PWC) at a total cost of around Rs 64 crore.
While New India Assurance, Oriental Insurance and United Insurance have roped in BCG the National Insurance Company has opted for PWC. But all the same, each one is forking out a hefty Rs 16 crore to these consultants.
Having lost over 40% market share in seven years and now investing another Rs 16 crore for restructuring is being viewed by industry observers with a lot of skepticism.
Industry observers point out that if the purpose was common for these companies, which have identical functioning and ownership patterns, what was the need to hire consultants independently at such a steep cost?
According to New India Assurance chairman and managing director, B Chakrabarti, the consultant has been selected on the basis of their expertise to give guidance on a host of issues, including long-term view on the economy and dynamics of general insurance market up to 2020. The consultant also would advise the company on the human resources development and structure.
?The consultant has been mandated to suggest strategies to retain our leadership in the domestic general insurance market,? he explained.
The consultants, who will have their blueprints ready in six months, will be actively involved in the implementation of the strategies which would take a little over a year. The domestic general insurance market is growing at 25% and was estimated at Rs 25,000 crore in March end.
For any successful financial services company in the post-liberalised era and competitive environment, manpower, technology and innovation have been the biggest tools to build their businesses rapidly and create a brand name.
It is worth mentioning here, the manner in which private sector players like Housing Development Finance Corporation, ICICI Bank, HDFC Bank and Axis Bank have established themselves in a short span of time. Other private sector insurance companies have done remarkably well too. In an unprecedented trend, just in seven years the nine private sector general insurance companies have garnered over 40% of the market share and they are still growing month on month.
The new companies have achieved this outstanding performance despite the fact that majority of their staffers are new and had no previous exposure to the industry.
Unlike other sectors in the financial sector services, insurance is knowledge-based and does need experienced hands to manage business prudently. Also with a limited branch network, which also matters for any financial sector services company, ICICI Lombard now is threatening to dislodge some of these state-owned insurers from their top four positions.
Further hitting state-owned insurers, private players insurers are gradually cornering insurance accounts of large coveted public sector companies.
Today insurance accounts of Reliance Industries, Indian Oil, Indian Railways, are being led by ICICI Lombard General Insurance. Air India also for the first time has given some shares to private sector general insurance companies.
Now the private general insurers are focusing on retail segment?which had remained completely untapped earlier?in a big way and have already started reaping the fruits in terms of market share.
Reliance General Insurance, the fastest growing company in the current fiscal is targeting more than 50% of premium from retail segments. ICICI Lombard General Insurance is now almost the leader in the health insurance segment.
For the four public sector general insurers in the liberalised environment, tariffing became a challenging task as private sector general insurers had the flexibility to win over corporate accounts by passing on large discounts.
Though this practice of heavy discounts was considered unethical, private insurers won hands down in grabbing market share.
There were many glaring disadvantages for government insurers to competition on the one hand and retaining staff morale on the other.
?Yes, tariff was our disadvantage. Being a typical PSU we have to stick to the rulebook but now the .the rules can be taken care of in different way. With tariffs being liberalised now there is a level playing field for us,?? says Chakrabarti.
The entry of new companies has indeed caused a loss of market share, government insurers do agree. But going forward, whether these companies would stand up to competition is what one needs to look at. ?We need to set right the aberrations of the past and focus on per employee production, customer satisfaction, growth in profitability, adopt right technology and put in reinsurance arrangement,? Chakrabarti points out.
In this context it is worth mentioning how another state owned insurer, Life Insurance Corporation, having faced all odds is trying to gain back lost market shares.
As at March 2006 despite fifteen players, LIC?s market share stood at 71.4%. However, in the last financial year the Corporation?s market share improved further to 74.18 % notwithstanding the fact that the number of players had gone up to sixteen.
?One learning that emerges from this experience is that intense competition can itself be used as a tool for generating super growth to stay ahead of competition,?? says TS Vijayan, chairman, LIC.
?We also have to rethink our strategies to go beyond our success because it has been wisely said that in business competition will bite you if you keep running, but if you stand still competition will swallow you,?? he explains.
What is most striking about LIC?s success is that the corporation has moved from mere incremental gains to quantum leaps leading to far ahead of targeted goals, Vijayan adds.
According to him all organizations in competitive environment have recognized the fact that customer satisfaction is the key to their survival and prosperity. Hence various programs and methods are put in practice to attract customers and retain their loyalty.
It would therefore be necessary for the four state-owned general insurers to take a cue from LIC that is going through a similar phase. Insurance is sold and not bought is what the four state-owned players need to realize. The sooner the awareness, the better their survival.
With or without consultants, they have everything to make them winners but the biggest stumbling block has been their demoralised manpower? at junior and senior levels. Low wages, inter-company policy transfers and lack of proper promotional policies off late have added to the woes of these companies.They don?t need a consultant to tell them.