"Gipsas move is suicidal and repressive, and it disregards the long-term financial implications on the industry. In addition, excluding one segment of employees from the purview of the scheme is discriminatory," says GIC Employees Union general secretary M Karthikeyan.

He says the VRS payout for the four companies put together will amount to not less than Rs 2,500 crore. "This will impact the industrys underwriting capacity and its ability to negotiate reinsurance contracts. The progressive weakening of the financial position will make the staff and pension optees remain in a continued state of uncertainty. The companies will not be able to recoup the lumpsum payout by way of savings in the salary cost even over a period of five years."

"Gipsa is actually looking at the wrong place to reduce its cost. Instead of the clerical cadre, it should look at the officers cadre first. For every four Class III staff, there is one officer in the industry. The flab is elsewhere," says a union member. Adds Karthikeyan: "The proposals relating to merger or closure of branches go against the government policy of spreading the good word on insurance."

Many of the branches in central India are understaffed to the extent that the officers there are forced to even man the letter despatch section. Gipsa, in a note circulated to the unions, had proposed several measures like consolidation of offices, VRS for Class III staff, organisational restructuring, recognition of trade unions, transfer policy and revision of working hours.

Gipsa also said that the special VRS was aimed at bringing about an overall reduction in Class III and IV staff strength by a minimum of 30 per cent (around 25,000 employees) following the computerisation of the operating offices. The VRS is aimed at all permanent employees aged 40 years and above and who have put in at least 20 years of service, but it excludes employees who have undergone special training in computer systems.

In support of its proposals, Gipsa has argued that all the four companies are operating at a high cost, ranging between 23 to 24.5 per cent as against the statutory cap of 19.5 per cent. Gipsa is of the opinion that the cost factor has been going up at the rate of 18 per cent and is expected to increase further with the fall in premium income due to new competition.

Added to this, the introduction of brokers and corporate agents into the market is going to be intermediary-driven, resulting in a further cost increase. In such a scenario, the cost of business procurement will range between 15 and 17.5 per cent as against the current level of 2.5 per cent. According to Gipsa, it is imperative for the operating offices both the branch and divisional offices to work within the cost ratio of 14 per cent so that the cost of the administrative offices regional and head offices are met.

The consolidation of offices will be done in two phases so as to avoid operational problems. The first phase involves the merger of offices situated in the same building or location in metro cities. The second phase involves the merger of offices where there is no second office in the same location. In such cases, the merger could be effected with offices whether belonging to the same company or to any other nationalised insurer located within a 100-km radius. A non-viable unit of one company will be merged with the unit of the other company with a higher premium base. The other major proposals include a reversion to the six-day-week work culture and the withdrawal of half-a-day casual leave facility.

"Why should the companies be worried about brokers? They can very well operate with the existing distribution network instead of procuring business through brokers and corporate agents," says an industry official. "When the entry of insurance brokers remains uncertain, and when the industry is considering floating new outfits that will underwrite the energy and personal lines of the insurance business, it will be suicidal to send employees out on VRS," says a high-ranking industry official.

In a communication to his comrades, All-India Insurance Employees Association secretary R Santhanam argues: "The hike in commission rates to 17.5 per cent is injurious to the industry and the insuring public. It is absurd on the part of the government and the regulator to expect the management expenses to be confined to 19.5 per cent as per Section 40C of the Insurance Act. The section has become outdated and irrelevant."

Questioning the Gipsa move at a time when the parliamentary committee is considering the bills, splitting up of the companies and the introduction of brokers, he says: "The need of the hour for the four companies is to put a collective front to face the new competition. The merger of the four companies into one corporation is the ideal solution."

While welcoming job rotation within the same office, Karthikeyan stoutly opposes Gipsas transfer proposal, as he thinks it will be used in a vindictive fashion. "Many of the staff welfare measures were procured after long struggles, and they should not be withdrawn," he argues.

"When the document issuance ratio is 98 per cent and the claims settlement ratio is 88 per cent, what more is the management seeking to improve customer service? The management shouldnt forget that a happy employee will automatically keep the customers happy," he sums up.

"We havent said yes or no to VRS for Class I officers"

After spending 39 years in the general insurance underwriting business, New India Assurance Company chairman and managing director K N Bhandari is set to retire next month. But just before his retirement, he has created quite a stir within the four government general insurance companies with his proposals.

After maintaining for a long time that there would not be a voluntary retirement scheme in the industry, in his capacity as chairman of the General Insurers (Public Sector) Association of India (Gipsa), he sent out a detailed proposal to the clerical unions of the industry, which includes a VRS scheme and rationalisation of offices and staff in the four companies. A couple of months back, a similar move was initiated by Gipsa with respect to the development of the officers cadre.

Curiously, voices against his proposals are being heard from all cadres. During his recent visit to Chennai to meet the unions, he took time off to discuss his recent proposals that have set the industry abuzz. Excerpts:

There is no sudden change of mind. We started this process with development officers (Class II) first. Some sections of Class III have been asking for the VRS. After the computerisation of branches, we have to shed some flab and the industry can afford to do that.

The VRS should conform to our business plans. We have not said yes or no to a VRS for the officers cadre (Class I). We are watching the developments in the market. We may even consider a VRS for Class I at a later date. In a changing business environment, there cannot be any permanent business strategy.

What we had said is that consolidation of offices, computerisation and re-engineering will result in a 30-per cent staff surplus. We didnt say that all of them will be asked to leave. Some of them will be trained and redeployed. We dont expect more than 5 to 7 per cent of the total staff to avail of the VRS. The population that will qualify for the VRS is very small, as the majority will fall outside the parameters laid down for the scheme.

As regards the financial payout for each company, it will not be more than Rs 50 crore, and they will recoup the amount in five years. The companys resources are not a problem at all. We will not dip into our investments, nor will we ask the government to fund the VRS. The industry has taken some proactive steps. There has been a slight increase in fire and health insurance premiums, and motor insurance rates are soon to be revised upwards. All the four companies are focussing on profitability. These developments will enable the companies to recoup the VRS payout in five years time.

Transfers will be based on the needs of the business. We will not transfer an employee for the sake of transferring. We have a structured policy that is transparent. If we want to do business in a competitive environment, we cant live in a big island. The market has become more demanding. Any proposal to increase competitiveness must be welcomed by everyone; and more so by the unions and other associations.

A parliamentary committee has recommended the merger of the four companies into one corporation. In the light of this, two bills one to delink the four public sector general insurers from the General Insurance Corporation of India, and the other to allow brokers to operate in the industry are under the consideration of another parliamentary committee. Given this situation, is it advisable on Gipsas part to table new proposals?

We wasted six years discussing the Malhotra Committee report. Any organisation should be flexible. We will act as per the government decisions. We have prioritised our needs. The first step is to make the companies efficient and to get rid of rigidities without increasing the costs. The cost of procuring business has already doubled to 5 per cent, and it is likely to go up to 15 per cent. We cant increase the premium at will. The measures we propose will contain costs and make the organisation more customer-centric.