Why India's public sector general insurance companies are losing out to private players

Public sector insurance companies on a dharna in July 2022 seeking wage revision | Photo courtesy: Special arrangement

On January 10, 2019, the Insurance Regulatory and Development Authority of India (IRDAI) cancelled the certificate of registration of M/s E-Meditek Health Insurance TPA Limited. IRDAI is the regulatory body under the Ministry of Finance, which is tasked with regulating and licensing India's insurance and re-insurance industries. E-Meditech's registration was cancelled over various irregularities, which include the empanelment of fake hospitals and settlement of claims for treatments in such hospitals.

After cancelling the registration, IRDAI asked all insurers to investigate the servicing of claims of policyholders made by M/s E-Meditek Health Insurance TPA Limited from 2011 and take appropriate measures to protect the interest of the policyholders. The insurers were asked to complete the investigation by or before August 9, 2019, and submit a final report. But not a single PSU insurer out of the four public sector general insurance companies in India completed the investigation or filed their report against E-Meditek Health Insurance TPA Limited.

Out of the 32 general insurance companies which do health insurance business in India, there are only four public sector general insurance companies: The New India Assurance Company Limited (NIACL), United India Insurance Company Limited (UIICL), The Oriental Insurance Company Limited (OICL) and National Insurance Company Limited (NICL).

Why didn't these four PSU insurers act against M/s E-Meditek Health Insurance TPA Limited and protect the interest of the policyholders? Amongst the four, NIACL filed only one interim report. Even though the Third Party Administrators were required to submit a performance bank guarantee to the PSU insurer so that it could be invoked in case of any irregularities, these four PSU insurers did not invoke the bank guarantee of M/s E-Meditek Health Insurance TPA Limited. 

Strangely enough, in the case of United India Insurance Company Limited (UIICL), the Comptroller and Auditor General (CAG), during its audit of the four PSU insurance companies, found that the company entrusted business (2,625 policies and premium amounting to Rs 3.46 crores) even after the suspension of the certificate of registration of M/s E-Meditek Health Insurance TPA Limited. In the case of the Oriental Insurance Company Limited (OICL), it was found that 227 claims (Rs 1.17 crore) processed by M/s E-Meditek Health Insurance TPA Limited during the period 2013 to 2016 were fraudulent, yet, OICL neither initiated legal proceedings nor recovered Rs 1.17 crore from the company. The CAG audit notes that the PSU insurers failed to carry out a proper and timely investigation into the claims settled by M/s E-Meditek Health Insurance TPA Limited.

Not just in the case of E-Meditech, the audit has found that all is not well with the functioning of the four PSU insurers because of which even when the health insurance business is the second largest line of business, all the four PSU insurers have incurred losses. The four companies had a gross direct premium of Rs 1,16,551 crores between 2016 and 2021, yet they incurred losses in the e-health insurance portfolio in all five years between 2016 to 2021, with an aggregate loss of all the four PSU insurers being Rs 26,264 crores.

The public sector general insurance companies have been losing out to private players for many years now. Some blame it on the Insurance Regulatory and Development Authority of India (IRDAI) for not being too assertive, but others say the ground realities are different. "During Covid-19, it was found that the New India Assurance Company Limited (NIACL), within nine months, had spent around 9000 crores for Covid claims. In order to acquire a business, the private players indulge in much manipulation, which the government companies cannot do. The CAG report talks about the malpractices or the irregularities that were going on within the government companies. But what about private companies? Who audits these private companies? They have the free will to do what they like. They have been eating into the business of the government companies," says Sanjay Jha, Secretary, Standing Committee (General Insurance), All India Insurance Employees Association (AIIEA). 

PSU general insurance company employees holding a rally against privatisation | Photo courtesy: Special arrangement

According to Jha, government interference in the four companies has stripped these companies of their functional autonomy. "If you look at the balance sheets of the three companies - UIICL, OICL and NICL - you will find a header called technical reserves. You will see that there is a sudden jump in technical reserves. This is due to the provisioning related to the old claims. The government and the IRDAI have been pressuring us to do more provisioning and show a clean balance sheet, and they really don't care if that will lead to losses. So, multiple factors have led to the current state of affairs."

The gross underperformance and multiple irregularities have made India's four PSU general insurers lose out to private players. This is evident from the June quarter results of the companies. Even when the market share of the private companies rose to 51.82 per cent in June 2022 from 47.63 per cent last year, PSU general insurers lost the market share from 42.23 per cent to 37.85 per cent. 

Speaking to The Probe, Girish Khurana, National Convenor of Joint Forum of Trade Unions and Associations (JFTU) of the public sector general insurance companies, asks what other outcomes can be expected from PSU general insurance companies when they are today struggling with manpower-related issues. "In 1990, our workforce was around 1,10,000 plus in all these companies. But today we have only 58,000 people in all four companies. In 2004 there was a special VRS scheme. Then they stopped recruiting people, and when recruitment is not commensurate with the exits, the strength will obviously get reduced."

The National Confederation of General Insurers' Officers Associations (CONFED) has been taking up matters related to PSU insurers with the government. Vijay Mishra, the Secretary General of CONFED, told The Probe that one of the biggest challenges facing the PSU insurers is the lack of human resources, and the existing human resources are also going to be further reduced by 2025. "Recruitment in these four companies happened around 1988 and 1989. After that, between 2011 and 2014, they did some recruitment. But in the last four years, nearly 30 per cent of our people have retired, and in the next four years, nearly 38 per cent people will get retired in all these four companies. Then we will land in a massive crisis. If we lose even the remaining people we have, then one can imagine how the companies will suffer." 

In 2015 the government passed the Insurance Law (Amendment) Bill. The government claimed that the amendment Act would remove archaic and redundant provisions in the old laws and incorporate new provisions to provide more tooth to IRDAI to discharge its functions with more flexibility. But the 2015 Bill also enhanced the foreign investment cap in an Indian insurance company from 26 per cent to an explicitly composite limit of 49 per cent. 

Sanjay Jha feels the pro-privatisation policy of the government has caused many problems for the PSU general insurance companies. "The government's position was that any of these companies can be privatised at any time. They kept spreading the feelers in the market that they would privatise United India Insurance Company Limited (UIICL). If you see this government's functioning, ideologically, they have been against public sector companies. They sold Air India. They are doing this with banks also. We have seen how even LIC's 3.5% stake was sold. Why was this done? What was the fault of LIC? LIC was not at a loss. It was one of the Fortune 500 companies. The problem is that this government is completely committed to the cause of privatisation."

PSU general insurance employees and associations hold a meeting regarding their demands | Photo courtesy: Special arrangement

Speaking on the lack of freedom to operate and the constant interference from the government, Jha says the top leadership in the government fixes even premiums without any consultations with the stakeholders. "Take, for instance, the Pradhan Mantri Suraksha Bima Yojana. Who fixes the premium? Are we fixing it based on the market realities? The problem is if the Prime Minister is also fixing the premium, then how can we be expected to run these schemes profitably? We need some level of freedom to operate. But when it comes to government companies, we get embroiled in the bureaucratic processes, and the private players take advantage of this."

Jha says that India's PSU insurers that once held a monopoly in the market today have been steadily losing out to private players. "In the last three years, in the group health insurance sector, we have lost a lot of money because of Covid-19, which has hit many companies. In the general insurance sector, there are many government schemes that we government companies flag-off, but then the private players come in and start competing using illicit means."

As the National Convenor of the Joint Forum of Trade Unions and Associations (JFTU), Girish Khurana has seen many employees of government companies constantly complain about the onslaught of the private players. "When you compare it with the private companies, we don't have a level playing field. So many rules and codes bind us. There is CVC and CBI, and we have our own internal auditors to look at our functioning. So, we have to be doubly sure that the rules are followed, but when it comes to the private players, they are completely focused on profitability. In the past, there have been situations where some private sector companies took over the government schemes where they preferred to get blacklisted rather than honouring the commitment after receiving the premium of whatever they quoted, and their claim ratio was increasing beyond that. Whereas, the public sector general insurance companies, once they take on any scheme like the Pradhanmantri Fasal Bima Yojana or the Pradhanmantri Suraksha Bima Yojana, they cannot get out of it. We have to honour the commitment made to the people." 

Over the last two years, many of the PSU general insurance companies started reducing their branches. Many of the regional branches of National Insurance, Oriental Insurance and United India saw shrinkage of their branch numbers in the name of restructuring. That apart, in his budget speech in 2018-19, former Finance Minister Arun Jaitley announced that the three companies - United India Insurance Company Limited (UIICL), The Oriental Insurance Company Limited (OICL) and National Insurance Company Limited (NICL) - would be merged into a single insurance entity. But several years have passed since the announcement, and the merger did not occur, but the resulting confusion sent the wrong feelers in the industry. 

Jha says this is one of the reasons why many of the PSU insurers are in bad shape today. "In 2018, Arun Jaitley announced that the three companies would be merged. It took three years for them to run through the processes, but eventually, they did not merge. They appointed Ernst & Young to give a report, and finally, they decided that they would not merge and keep these companies as individual government companies. Now tell me, what message are you passing in the market if you keep spreading confusion? In the market, a very wrong message went that the companies were not doing well and that's why they were being merged, and when they did not get merged, then people started speculating that the companies were doing so badly that even if they merged, it had no future and that is why the merger was called off."

Jha has been leading the All India Insurance Employees Association, and he says that almost all the employees want these companies to be merged today. "When such merger confusion was going on in the market, the private players largely benefited from it. Right from the beginning, we have been demanding the merger. Why are there four companies in the first place? And why should these four companies fight with each other or internally compete with each other for business? If we merge and if we synergise, we will become powerful. In fact, not just three, we want even the fourth company, the New India Assurance Company Limited (NIACL), also to be merged."

Vijay Mishra, the Secretary General of CONFED, feels that it is not just the employees who must take the blame for the losses but also the government of India and the IRDAI. The poor policy planning and the lack of forward planning and strategising have led to such huge losses in the PSU insurers. 

Speaking to The Probe, Mishra says it's time the government and the IRDAI also took ownership. "After the 2018 announcement, so much confusion was created. Between 2018 and 2020, when the talk related to the merger was going on, we lost 10 per cent of our market share because there was utter confusion in the market regarding the merger. People were speculating on a new entity. Others were speculating on how the new company will be incapable of handling the client's needs. Many felt that the new company would take time to stabilise their operations. We started doing badly right from the time the government floated this merger talk. From 2012 to 2017, we were making profits and doing well, but after the 2018 announcement, our doom started. After creating all this ruckus, then finally, what happened? Did they merge? No. They didn't. So, all this was for nothing. We lost 10 per cent of our market share for nothing."

Today the 58000 and odd employees of these public sector general insurance companies have been protesting and walking from pillar to post demanding their long pending wage revision. Wage revisions in these four public sector general insurance companies have been due since August 2017. 

"Our wage revision has been pending for the last five years, from August 1, 2017. All wage revisions fell due in 2017 for banking, LIC and general insurance. These wage revisions used to be cleared almost simultaneously with a gap of one or two months. The banking wage revision was cleared two years back. LIC was cleared a year ago, and it is still pending for general insurance. In June 2022, we had an important meeting, and we raised many demands. In writing, we have been approaching the ministry with a lot of concerns. But so far, nothing has been done. They are telling us that they are running in losses. The government has been saying that there is a heavy loss but let me tell you; the loss is not because of the employees. The loss is because of the government's wrong policies," says Khurana. 

Inter-company competition, government interference, wrong policies, a timid IRDAI and lack of functional autonomy - all have resulted in the PSU insurers losing out to private players. Sanjay Jha feels the problems are many, but the solutions are not far behind. "The government should merge all these four companies. Merging will stop inter-company competition and unnecessary deployment of resources in multiple places, and also, together as a single entity, we can take on the private players like a united force. The government keeps saying minimum government and maximum governance, but is this a reality? The government must stop meddling with these companies and micromanaging their day-to-day affairs. Give these companies the freedom to function. Once we are merged, and we have functional autonomy, things will start falling in place."