New India Assurance readies to take on competition

With competition lurking round the corner, the Mumbai-based New India Assurance Company Ltd. has taken the first step to consolidate its lead as well as reduce its operational cost. More particularly it's management expenditure.

No, the company is not implementing a voluntary retirement scheme (VRS), the standard prescription doled out by consultants of various hues. On the other hand, the company is implementing a scheme that is expected to increase its revenues by redeploying its staff.

Recently, New India Assurance inducted nearly 230 marketing executives. No these are not new recruits, but people redeployed from its large pool of clerical staff. This new crop will now fan out in the market to garner more business. What is interesting is that when private players are scouting for executives from fast moving consumer goods (FMCG) industry and MBA's, New India Assurance has decided to induct experienced insurance hands.

This, in a way, underlines the thinking that insurance selling in India is not like selling soaps, credit cards or some financial products. It is selling a promise that is intangible for money that is tangible. And New India believes that FMCG executives will have tough time in understanding this.

Be that may be, the proposal to induct interested clerical staff into marketing line was taken by all the four nationalised general insurers – National Insurance Company Ltd, New India Assurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd- three years back.

The agents association put a spoke in the wheel by filing a case against such a move. Recently the case was decided against the association. Interestingly, except for New India Assurance the other three companies are yet to decide on the matter though several of their employees have put in their willingness to change over to marketing in writing three years back.

As per New India Assurance's scheme, the converted staff will be on one-year probation. During that period they will have a lien on their clerical post and can revert back to their original post after probation, if they so desire. The staff-convert development officers have been given a target based on their annual gross salary. For those who are posted in metros the target is 9 per cent of the gross annual salary and for those who are posted in semi urban and rural areas the business target is 8 and 7 per cent respectively. And those who complete their annual target by this fiscal end will be immediately promoted to the next cadre.

A back-of-the-envelope calculation estimates that New India stands to gain a premium revenue of Rs 23 crore in this fiscal alone through this scheme.

According to industry sources, conversion of clerical staff into marketing executives has multiple benefits. Firstly, the staff - a fixed cost - will bring in additional premium income. By this decision, the company gives a chance to marketing savvy staff to use their skills effectively and there by raising the employee morale. Finally and more importantly, the additional premium income will enable New India Assurance to slightly lower its management expense to gross premium ratio.

Currently the company's management expense ratio is 20.8 per cent that is higher than the statutory ceiling of 19.5 per cent stipulated by Insurance Act. The ratio for other three public sector general insurers viz National Insurance, Oriental Insurance and United India Insurance are 24.7 per cent, 24.7 per cent and 29.4 per cent respectively. This is expected to go up further when new players eat into their premium base.

All the insurers are expecting to lose a sizeable premium income once private general insurers come into play. And interestingly it is New India followed by United India who will be badly hit in comparison to the others as they are the insurers of most of private industrial groups like Tatas, Reliance, TVS etc who are getting into the insurance sector. In addition financial institutions like ICICI, IDBI are also going to give all nationalised insurers a run for their money. United India has estimated that it will lose around Rs.1000 crore-premium income once the private players get in.

New India at least hopes to stem the rot through its new scheme.