General Insurance Corporation of India
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Case Code: BSTR111 Case Length: 31 Pages Period: 1992 - 2002 Pub Date: 2002 Teaching Note: Not Available |
Price: Rs.500 Organization: General Insurance Corporation of India Industry: Insurance Countries : India Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
The Pre-Liberalization Era
GIC was set up as a holding company in 1972 as per the General Insurance Act 1972, under which the general insurance industry in India was nationalized. Before nationalization, the general insurance business in India was more urban-centric and served only organized trade and industry. Therefore, GIC was established with a mission to offer need-based insurance to the rural population. (Refer Table I). At the time of nationalization, there were 107 Indian and foreign insurers offering general insurance products...
Organizational Structure
GIC was a holding company, separate from its subsidiary companies. It was responsible for broad policy matters that could affect the general insurance industry in India. The company did not offer any direct insurance policies except the aviation insurance policies of Air India, Indian Airlines, Hindustan Aeronautics and Crop insurance. From the reinsurance business, GIC received 20% of all direct business written in India by its subsidiaries. Apart from the four subsidiaries, GIC set up the GIC Asset Management Company to manage the GIC Mutual Fund, GIC Housing Finance, and Export Credit Guarantee Corporation...
The Post-Liberalization Years
In 1999, the IRDA Bill was passed by the Parliament, and the insurance industry was opened for private players, with equity participation of foreign companies limited to 26%. By 2000, a number of private players entered the general insurance market through joint ventures with leading foreign players. This resulted in increased competition and GIC was forced to make several changes in its organizational structure and business strtegies. In January 2000, GIC took initiatives to deal with competition that had resulted from the deregulation of the insurance industry. The global consultancy firm PriceWaterhouse Coopers (PwC), and a chartered accountancy firm, MP Chitale, were appointed to restructure the GIC and its subsidiaries...
Restructuring of GIC
The management consultants appointed by GIC laid down four options for its organizational restructuring:
• Merge all the four companies or form two companies, with one exclusively conducting corporate business;
• Follow the Malhotra Committee recommendations by delinking the four subsidiaries from GIC, and give them operational independence;
• Allow equity crossholdings among the four subsidiaries; and
• Entrust one geographical region to each of the four outfits.
Products and Services
General insurance may be described as a way to reduce or eliminate risk of loss to property. The risks covered by general insurance included fire, the perils of the sea, death and accidents and burglary. Any risk arising from these may be insured against at a premium that commensurates with the risk involved. Thus, insurance is collective bearing of risk. GIC offered a variety of general insurance products (Refer Exhibit I)...
Marketing
GIC did not seem to have formulated any concrete marketing strategies until the government of India had announced the liberalization of the Indian insurance industry. Since the company enjoyed a monopoly status in the market, it did not focus on marketing. Moreover, as some of the general insurance policies were mandatory, the company did not need to market them. GIC did not seem to focus on providing better service to the policyholders also. In the pre-liberalization era, most of the agents and development officers were more interested in getting more customers and there were many complaints about poor customer service...
Globalization
In December 1987, GIC, along with its subsidiaries set up a subsidiary in Singapore, known as India International Pte. Ltd. with a paid-up capital of S$25 million. It offered a wide range of insurance policies including those for motor, marine hull and cargo, personal accident, workmen's compensation, public liability, fire and miscellaneous accidents. India International became a leading insurance company in Singapore. During the same period, GIC also set up The New India Assurance Company (Sierra Leone) Limited and The New India Assurance Company (Trinidad & Tobage) Limited...
Human Resources
GIC's employees were grouped as Class I, II, III and IV. The officers were the Class I employees, development officers were the Class II emloyees, clerical and supervisory staff were the Class III employees, and subordinate staff were the Class IV employees. In 1997, a new wage revision policy was proposed and two new practices were introduced - 12% wage hike for all, and concept of Productivity Linked Lumpsum Incentive (PLLI). Prior to the implementation of this wage revision policy, the wages for the employees were revised in accordance with the wage revision for the banking industry. The new wage revision took place once in every five years...
Social Responsibility
The provision of social security was a responsibility of the State, as per the Schedule 7 of the Constitution of India. The laws passed by the State to serve the purpose included the use of insurance - compulsory or voluntary - as a security tool. The Employees State Insurance was one such scheme, which took care of the expenses incurred due to sickness, disablement, maternity and death, for the benefit of industrial employees and their families. Insurers played an important role in the social security schemes sponsored by the GOI. The Insurance Act, 1938, made it mandatory for insurance companies to offer a percentage of business to the people in the rural sector. They had to offer insurance to workers in the unorganized sectors, economically backward classes of the society and other categories listed by the IRDA...
Finance
In 2001, GIC and its subsidiaries reported a total loss of Rs 17.22 billion as compared to the losses of Rs 12.14 billion in 2000, and Rs 6.87 billion in 1999. The net premium from fire insurance business stood at Rs 21.50 billion compared to Rs 24.04 billion in 2000. The net premium from marine insurance business stood at Rs 8.28 billion as against Rs 8.46 billion in 2000. The motor insurance business reaped a total premium amounting to Rs 33.62 billion in 2001 and Rs 23.17 billion in 2000...
Future Outlook
Analysts felt that GIC's future looked bleaker after the deregulation of the insurance industry in India. Competition was tougher in the general insurance segment, as compared to the life insurance segment. In life insurance, customers were locked in for life or at least for a minimum of 10 years. In general insurance, most of the policies were mandatory and had to be renewed annually. With the entry of private players and increasing competition, customers now had more choices and they had become highly price sensitive. They were not loyal to any specific company. Moreover, switching from one company to another did not involve any cost or inconvenience. In addition, building trust was not considered very important in this segment...
The Indian General Insurance Industry
In the 1970s, the general insurance industry was nationalized in order to increase the penetration of insurance in the country and make it available to the lower segments of the society, particularly the rural population. However, even after 40 years of nationalization, only 25% of the insurable population was covered by insurance. This was one of major reasons that lead the GOI to liberate this sector, so that private players could work towards extending the reach and coverage of insurance across the country...
Exhibits
Exhibit I: Some of the Popular Products of GIC
Exhibit II: NIAC's Global Operations
Exhibit III: The Farmers' Package Insurance
Exhibit IV: The Tribal Package Insurance
Exhibit V: Analysis of Profit/Loss in Underwriting Business of Insurance PSUs
Exhibit VI: Total Profit/Loss Of Insurance PSUs
Exhibit VII: About IRDA
Exhibit VIII: Profile of the Private Players in the Indian General Insurance Market
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