Finance ministry asks insurance cos to prune foreign operations
The finance ministry has directed insurance firms to rationalise their foreign operations and assess their joint ventures and subsidiaries abroad as part of measures to cut losses. The General Insurance Corporation (GIC), country’s premier re-insurer, posted a net loss of Rs 641 crore in 2010-11 on account of its foreign exposure. Each of the foreign branches should act as a stand-alone profit centre and all branches that have incurred losses continuously over the last three years should either rationalise their functioning or close down, a finance ministry official said. The ministry has also asked insurance firms to analyse policies issued country-wise and risk wise. "They also need to set up a monitoring mechanism to assess the loss triggers on regular basis," the official said. The ministry is of the opinion that consolidation of business is a better proposition than spreading out thinly and making losses. The finance ministry has been worried over the mounting losses by the state-run companies. It has already issued instructions to them to not compete among themselves and cut commission on loss-making products. It has even directed GIC to pay only 5% commission to brokers. The ministry has maintained that the re-insurer should not be paying commissions at all as law requires general insurance companies to re-insure 10% of their business with GIC. GIC had been paying commission as high as 20% in certain cases in the past. The GIC has already made a provision of Rs 3,679 crore in 2011-12. The losses of general insurers could mount after the insurance watchdog asked to wind up motor third-party insurance pool, a mechaninsm to distribute losses on third-party motor insurance. The GIC, however, does not agree with the finance ministry’s prescription. "There was an earthquake in New Zealand and Japan, floods in Australia and Thailand. We are not alone, every insurer and re-insurer has been hit," a GIC official told ET. Natural calamities last year were unprecedented and also foreign operations cannot be determined by a one-time natural event, the GIC official added. Interestingly, the insurance watchdog IRDA has said that insurers need to look beyond national boundaries and expand their operations abroad.
Source : ET Bureau