The head of one of the largest insurance unions, M Karthikeyan disagrees that merging the four public sector general insurers would improve their ability to compete with their new private sector rivals. In an interview with V Jagannathan, he explains why.

Chennai: At a time when two unions of the non-life insurance segment are demanding a merger of the four government owned insurers (National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited), the National Federation of General Insurance Employees (NFGIE, which is also referred to as the Federation) has been opposing the move.

The merger of the four companies has the following advantages: (a) size is important in any business and more so in the case of insurers (b) higher underwriting and risk retention capacity of a combined entity (c) increase in reinsurance premium (d) reduction in reinsurance outflow (e) healthy solvency margins (g) setting right the asset / liability mismatch and (h) reduction in costs.

Way back in 1999 domain-b.com had argued in favour of merging the operations of the four insurers. (See: Merger''s the answer for general insurance). Eight years later, the top echelons of the four companies seem to be veering towards that view.

However, the Federation''s general secretary M Karthikeyan, reacts differently, "Theoretically the argument is sound. At the practical level a merger would succeed only under a professional and with lower employee strength. The present management cannot change its attitude to cope with the challenges of a merged entity."

According to him, all four companies and their former parent General Insurance Corporation of India (GIC) lost precious time and opportunity to venture into other areas in the financial services sector, like banking and life insurance, while today virtually every major financial services group has a presence in the entire spectrum of the sector — banking, life / non-life insurance, non banking financials services (NBFC).

Even as a school-goer Karthikeyan, who holds on strongly to his views, could not be brow beaten in to submission. After he joined The New India Assurance Company Limited in 1988, he took on his union''s unit secretary, while an ordinary member of the union, for acquiescing to the management''s policy of offering adhoc payments instead of properly structured overtime wages for working on holidays and after office hours.

"Either pay us the actual overtime allowance or don''t pay at all," he argued. The management found it difficult to disagree with the logic. Not surprisingly, he was chosen as the unit head.

After that there was no looking back for Karthikayen, then 42 year old. Today he heads the Federation with around 9,230 members and one of the three largest unions in the non- life insurance sector. It is also the only union that represents both officers and clerical staff is the first non-life union to have a website of its own.

Says former general manager cum director, New India Assurance, A V Muralidharan, currently the chairman and managing director, Export Credit Guarantee Corporation of India (ECGC) "Karthikeyan is a capable leader with impeccable integrity. He would passionately espouse the employees'' cause. I see another T K Rangabhasyam in him." The late Rangabhasyam is remembered as a union leader in the general insurance industry with gigantic stature and impeccable integrity.

Adds M Ramadoss, chairman and managing director, Oriental Insurance Company Limited, "Karthikeyan follows his own set of principles and holds on to his beliefs strongly." Citing Karthikeyan''s views on the merger of the four companies into one monolithic corporation, Ramadoss says, "While a merger would make economic sense, Karthikeyan is of the view that at the employee-level integration will not work out lead to major consequences. His views on forming strategic business units, increasing the in-house claims survey are also worth considering."

A commerce graduate from the University of Madras, Karthikeyan has also done his Licentiate course from the Insurance Institute of India. Though he aspired to become a chartered accountant — he had even passed one group of intermediate level papers — destiny had something else in store for him. After a brief stint at Wipro in New Delhi, he joined New India at Ranipet in the clerical cadre.

While his wife, Srividya a school teacher, and daughter Kavvya a school student, are both in Chennai, Karthikeyan is in Mumbai to steer the union at a time when government insurers as well the unions are facing a turbulent times.

Here he talks about the issues faced by the government insurers, unions and the way ahead. Excerpts:

In your opinion what are the challenges before the public sector non-life insurers face today?
The introduction of a detariff regime when the market hasn''t matured has queered the pitch for government companies. The fire premium has gone down by 55 per cent while the premium in the other classes of businesses too has gone down.

Unprofessional brokers have forced the companies to charge risky rates. Had there been a vibrant risk management sector, the premium wouldn''t have gone down to such levels. In addition the business procurement cost that used to be very marginal has gone up to over 10 per cent, while the claims outgo is not expected to go down.

The management talks of reducing th overall costs by 5 per cent, but that is going to be difficult. Given this situation, I expect government owned insurance companies to face a cash crunch in the coming years. Already National Insurance Company Limited is facing problem in meeting the minimum solvency norms.

The other issue is the redundancy of the staff. Private companies, in order to cut their employee costs, have allowed clients to generate policies at their end over the internet. The government companies too, but in a limited way, have allowed policies to be generated at their clients'' end. If this practice continues, then existing staff will become redundant. Reducing the staff will not be easy as the companies are not in a position to fund another round of voluntary retirement.

What is prescription for each of those challenges?
I have some random thoughts. Aping the private sector, the government companies too have started outsourcing, which only adds to costs. The one logical way is to demerge the various operations that could be outsourced into wholly owned subsidiaries. For example, the companies can float their own third party administrators (TPAs) transferring people from the parent company.

This way the government owned companies can reduce their cost and also retain the cash outgo within the family. Similarly the companies can ask the government to amend the Insurance Act to enhance the in-house survey limit for clais up to to Rs2 lakh from Rs20,000 at present, which has been continuing for several decades.

Do you think that the management of the four companies are vindictive towards the staff?
Certainly, yes. Today the managerial cadre acts vindictively and harassment has gone up. For instance, the management is not concerned about offering a promotion to those in the peon, driver cadres. Out of the six cadres, four are left out of the promotion policy. Actually the companies are top heavy. The ratio of officers to clerical cadre is a meagre
1:1.14 against the norm of 1:3.

What is the attitudinal change you see in your members towards the union and its activities?
Gone are the days of passionate union members. Ever since economic liberalisation was ushered in, there has been a change in union members'' attitude towards unions. The implementation of voluntary retirement scheme and compulsory transfers has resulted in many quitting the companies and the unions. Times are going to be tough for the unions.

The average age of the employees in all the four companies has been rising, which affects the companies and the unions. How can the age factor be remedied?
Nearly 60 per cent of the existing employees will retire by the year 2011. Employees in large numbers will start retiring from 2009 onwards. Those who will remain in service at that time will be nearing 50 or have crossed 50. The management is not alive to this situation.

They fear that fresh recruitment means increase in union membership. My view is that the company should recruit people in all age groups - below 25, and between 25 and 40 so that there is a good mix of people and the transition is also smooth.

Though private insurers entered the sector six years ago, existing trade unions have not been able to expand their reach to them.
I agree that it is time to look at the private sector employees. They should also unionise like their counterparts in the private sector banks.

At the political level we see vibrant coalitions, which is absent in the unions in your sector. Like the General Insurance Public Sector Association (Gipsa) representing the four companies, can''t the unions form a similar body?
We are in favour of a coordinated approach amongst the unions just as Gipsa. Time will force the unions to shed some of their outmoded thoughts and join hands.