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Privatization of Public Sector General Insurers


Summary

GENERAL INSURANCE

A recent news article caught my fancy yesterday. The article was titled “One state run insurer might be privatized ahead of banks”. The article piqued my curiosity, primarily because one of my cousins who started his career in the Insurance Industry has made his millions there. While at it, he had offered me to join him and I had turned him down, but I digress. The point is, I forced myself down this rabbit hole of how the public sector general insurers landed at where they are, if for nothing else, to satiate my personal angst, of not joining the cousin in his endeavor and having lost on a golden opportunity.

When India decided to nationalize general insurance in 1972, the government felt a need to forge a distinct path for the general insurance sector – something akin to what it was trying to do with the banking sector; create an atmosphere of trust amongst the expanding customer base, generate employment, while creating an alternate investment infrastructure (apart from banking) for the country – IRDAI still mandates a certain percentage of premium to be invested in government bonds and nation building activities. But fifty years on, the primary objective seems to have been long outlived; while there still is a certain generation of retail Customers, who do trust the public sector general insurers (PSI), it is a waning crowd.

Today the Customer wants ease of use, policy insurance in a click, claim settlement in another. She isn’t willing to bear a premium on the service angle, just because a company is government backed. And it is precisely the service angle that the PSIs have been snailish to adapt to – The Customer for them, is still the neighbor next door; King or Queen for that matter, could wait till the public sector employee have had their tea break, or have footbaled her from one table to the next or shrugged their shoulders about the concerned Officer being on leave.

PSIs seem to have gone down the same rabbit hole that the banking industry treaded a decade back. Banking, albeit a couple of decades back, had also started with corporate clientele without paying a lot of heed to the retail customer. If only we learnt from History, it would probably stop repeating. The private players in both the industries treated the Customer like a Queen and have been duly rewarded.

Ironically, when it came to operations and growth strategy, PSIs did not follow into the footsteps of the elder brother LIC. While LIC empanelled agents to sell policies and earn commissions, PSIs hired them and put them on a fixed salary – thereby, once you had passed the hurdle of getting into the company, you took home a fixed salary, irrespective of how you or the company performed. We all know how that was going to end, don’t we.

Evolution, unfortunately so, is the only way to survive. While the PSIs constantly kept putting rules above the Customer, the private sector kept looking to ease her pain. Case in point – till just about a year back, you could not renew your motor insurance policy post expiry, unless you got the vehicle physically inspected. Come in, online self inspection. Today if for some reason your motor policy is not renewed on time, you do not need to visit the insurer for a physical inspection. You can self inspect.

Come to think of it, it is a shocker that PSIs have survived for this long. One of the reasons could be the low benchmarks in the Industry in general. Keep apart a couple of private sector players, rest of them aren’t too far ahead of the curve. It is therefore heartening to see an industry with so much potential – non life insurance penetration in the country stands at around 1% – finally turning the leaf.

The industry seems to be finally ready to dance with technology. New age players like Digit, Acko are pushing the traditional brick and mortar structure into oblivion. While some challenges do remain unaddressed, we are probably at the knee-curve point, to borrow from Ray Kurzweil’s Singularity. The path hereon would be exponential.

One of the prime challenges the industry faces is in claims servicing. We humans seek human comfort in adversity. An episode of Black Mirror (a sci-fi drama with shades of human emotion) briefly explores the morality of self driving cars. For all the advancement in technology, we are yet to evolve to a place where robots could be sensitized to handling the Customer end of touchy issues like claims. Then again, maybe it is us, humans, who need to evolve to that place, maybe it is us who need to let go of the distinction that we are being tended to by robots.

One of the chief tasks of a government is to run welfare schemes for the needy. While schemes like Pradhan Mantri Suraksha Bima Yojana/ Fasal Bima Yojana have benefited the rural poor, the schemes remained marred by patchy implementation. Moreover the private sector participation in such schemes is negligible. That being the case, does it not make sense to have a single company run all of these schemes?

Some insiders, especially the younger lot, complain that they are bearing the brunt of what their predecessors plowed, or maybe didn’t plow enough. What they do not understand is this model of regular capital infusion into public sector general insurers isn’t sustainable for long. TATA’s might not be able to rescue every sinking ship. Given the kind of enthusiastic activity the sector has been witnessing off late, their industry knowledge can easily land them a right offer, even if they do not want to continue with the same insurer after privatization.

All said and done, I think, this is a step in the right direction; as far as my writing job is concerned, who knows, maybe my cousin buys one of these companies and hires me as a writer, if not an underwriter, pays me in ESOPs, I become a millionaire myself, and, well, I digress.

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Susheel Agarwal

Namaste. I'm Abhinay Nedunuru, a Fellow of the Insurance Institute of India with a passion to make insurance simple and crisp. I write mostly on insurance and investment. I have a passion for teaching and training in particular to insurance. I'm currently doing my PhD from IIM in Marketing Management.