New challenges for state-run postal insurance

May 20th, 2008 - 12:34 pm ICT by admin  

By Venkatachari Jagannathan
Chennai, May 20 (IANS) The move to turn the 124-year-old Postal Life Insurance Directorate of the state-run India Post into a separate corporate entity throws up several challenges, both operational and financial, experts maintain. Even though the directorate will get the freedom to invest its Rs.160 billion ($4 billion) corpus, it will, however, face huge increases in operational costs, mainly on account of higher commissions on premiums, the experts added.

“The directorate’s low cost model will go for a six,” said consulting actuary R. Ramakrishnan, a member of the R.N. Malhotra committee on insurance reforms and a former executive director of the Life Insurance Corp (LIC).

“For instance, as in the case of corporate life insurers, the commission outgo will not be less than 10 percent of the total premium earned,” Ramakrishnan told IANS.

For now, the corpus of postal life insurance - established in 1884 as a welfare scheme for the employees of posts and telegraph department and extended to the rural populace in 1995 - is managed by the finance ministry, which pays a fixed return of eight percent per annum.

“But the directorate in the future has to become a separate corporate entity and will be governed by the guidelines of the Insurance Regulatory and Development Authority (IRDA),” said Suneeta Trivedi, its chief general manager.

Its schemes are open to employees of central and state governments, nationalised banks, public sector undertakings, financial institutions, local bodies like municipalities and government-aided educational institutions.

It functions through a vast network of 150,000 post offices and marketed by a workforce of 200,000 employees.

Last fiscal, the commissions and incentives paid by the directorate were just Rs.400 million ($10 million), or less than 1.5 percent of the total premium income of Rs.27.50 billion ($685 million).

The scheme gets the bulk of its business through its development officers, field officers and post office officials including postmen. Independent agents are not enthused to sell its policies because of the low commissions on the premium.

Barring few policies, the organisation also does not pay any renewal commission unlike the other life insurers.

Since it is part of India Post, the directorate is able to leverage its manpower and network. But as an independent company it may not be able to do that and may find it difficult to pay the market rates to attract talent, experts said.

These apart the organisation may also not enjoy the sovereign guarantee that is now available to policyholders as it is a part of a government department.

Already, private life insurers are complaining against the sovereign guarantee available to the policyholders of Life Insurance Corporation of India (LIC).

Under the LIC Act, the central government guarantees to settle in cash all the dues of policyholders - both the sum assured and the accrued bonuses.

“If the directorate is made a corporate entity, it should be subject to the IRDA guidelines without government guarantee to its policyholders,” said S.V. Mony, who, till recently, was secretary general of the Life Insurance Council, a body of Indian life insurers.

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