Panel suggests GIC subsidiaries be made board managed cos.

By V. Jayanth

CHENNAI, MARCH 29. In a move that could have far reaching consequences, the K. P. Geethakrishnan Committee has suggested that the ownership of United India Insurance and the other three subsidiaries of General Insurance Corporation (GIC) be transferred to the Central Government.

``The first requirement for United India Insurance, in a competitive environment, would be to deal with only one owner. As it is a Government company, parliamentary accountability has to be there,'' the four-member committee, headed by the former Finance Secretary, said in its report submitted to the United India (UI) board. UI had requested the committee to take a close look at its operations and organisation to prepare for the competitive environment that lies ahead.

The committee noted that while the Nationalisation Act stressed the need for GIC to encourage competition among the four subsidiaries, ``in actual practice, the control and emphasis on greater uniformity by both GIC and Government has resulted in the companies developing more or less as identical clones.''

There were suggestions that the competitive edge of the four Government-owned insurance companies could be improved by merging them into one or two large companies, but the committee felt ``such amalgamations would greatly undermine the efficiency and effectiveness of these organisations, as these will be plagued by merger problems for at least next 10 to 15 years.''

To prepare for the competition from private players, these companies could be made to compete among themselves for the next two years. Because of the tariff regime on most products, competition, the committee said, ``has largely taken the form of unauthorised undercutting.''

So, the committee suggested `de-tariffing' most of the items in a phased manner over a two-year period. If some tariff regulation was essential on social or economic considerations, then it should be kept to a minimum and its enforcement could be entrusted to an arm of the Insurance Regulatory and Development Authority (IRDA).

As for restructuring, it was suggested that the insurance companies could be made `Board managed companies', with considerable delegation of powers.

Though it was not directly concerned about the disinvestment policy or parameters set by the Government under the new Act, the committee has gone into this question as well. It suggested that the Government and the insurance companies should go beyond the 26 per cent limit in order to provide more freedom to the public sector insurance firms. Only then could they become autonomous and take the commercial decisions necessary to survive in such a competitive environment expected within the next two years.The committee has also gone into product development and competitiveness, calling for the utilisation of its general reserves of a little over Rs. 1,000 crores for diversification.

The committee commented on the ``very poor progress in computerisation'', which affected not only organisational efficiency, but also resulted in inability to attend to customer requirements expeditiously.

Outlining a future strategy, the committee called for rationalisation of the number of branches. ``The organisation should be made much leaner, at least by 25 per cent, through a liberal golden handshake programme,'' the committee recommended. It has suggested a framework for a pruning of the staff strength. But the emphasis must clearly be on improving productivity and marketing.

Investment management needed drastic overhaul. It could be headed by an executive director and supported by specialists, to maximise returns and take advantage of the day-to-day fluctuations in markets.

This committee was set up in March 1999, headed by Mr. Geethakrishnan. The other members were Mr. Ashok Goenka, former Chairman, General Insurance Corporation, Mr. C. N. Ramachandran, a senior chartered accountant, and Mr. T. G. Menon, retired general manager of United India.

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