Compete or perish

The insurance sector has come full circle with the government issuing the certificates of registration to a private life insurance company and two general insurance companies on Monday. Three other companies have also been given approval of registration in principle. Given the applications pending with the government, there will soon be a large number of private insurance companies providing competition to the public sector giants — LIC and GIC — and their four subsidiaries. Of course, such competition is not new in this sector where, for instance, there were over 100 players when general insurance was nationalised in 1972. So does this amount to a throwback to the old system? Hardly, as the situation has undergone a metamorphosis since then. In the interregnum the country has realised how the monopoly enjoyed by the public sector insurance companies has proved detrimental to the interests of policy-holders. To cite one instance, the decrease in the mortality rate should have had a beneficial impact on thelife insurance business. In other words, the premium rates should have come down. This did not happen. Consequently, a majority of the life insurance policy holders, who took the policies only because they were either compulsory or had some tax benefits built into them, feel cheated.

Even in the case of general insurance, where a modicum of competition was sought to be provided by allowing four companies to compete against one another, the experience of the policy holders has not been any different. But for the huge capital at their disposal allowing huge blue-chip investments, they would have looked sicklier by now. What the government did on Monday is the logical culmination of economic liberalisation, which the LIC and the GIC should have anticipated. When the common refrain is "compete or perish", there cannot be any islands of monopoly. This means the public sector giants will have to prepare themselves to compete with the new entrants. Of course, there is enough ground for all of them to play. That the LIC covers only five per cent of the population shows the gargantuan size of the untapped market. The need for innovative schemes that can attract a large section of the uninsured population cannot be overemphasised.For the common people, lower premiums will be the main determinant.

This holds true for general insurance, too, where quick settlement of claims is central to the success of an insurance company. Unfortunately, this is not one of the strong points of the GIC and its subsidiaries which have, over the years, become more and more bureaucratic and corruption-driven. It is, therefore, no surprise that the claim rate has been going up, be it in motor insurance or marine insurance. To expect the multinationals and other new comers to dig deep into rural insurance is not to understand them. The headstart LIC and GIC enjoy by virtue of the vast networks of agents and other infrastructure at their disposal will be the envy of the new players. Seen in this perspective, nothing prevents the public sector companies from meeting the challenge. Unless, bureaucratic inertia and corruption have so sapped their vitals that they just can’t stand up and compete.