Combination factors enable The Oriental to cut H1 loss by Rs 3,544.76 cr

CHENNAI: From a net loss of Rs 3,586.93 crore during the first half of FY23 to a net loss of just Rs 42.17 crore for the comparable period in FY24 as seen in the advertisements is not any printing mistake, but the result of right steps, said a top official of the public sector non-life insurer, The Oriental Insurance Company Ltd.

“A combination of factors has resulted in our company cutting down the net loss to Rs 42.17 crore for the half year ended 30.9.2023 from Rs 3,586.93 crore logged during the corresponding period of FY23. It is not a printing mistake with regard to the decimal point,” laughed R.R. Singh, Chairman-cum-Managing Director, while talking to IANS.

He also said, if the same trend continued and nothing catastrophic happened, the insurer may close the fiscal with a small net profit.

According to him, on an apple-to-apple comparison of the two-half years, then the net loss for last year was about Rs1,300 crore if one takes out the Rs 2,286 crore wage arrears paid last fiscal.

The combination of factors, that Singh cites, are prudent underwriting of health, motor and other insurance business, converting fixed cost salaried employees into income generating ones, rationalisation of intermediary commissions based on profitability, office closer or moving to a smaller premises to cut down the rental outgo, leveraging video conference technology to cut down employee travel costs and focusing on social media promotion for business.

Elaborating further Singh said, nearly 50 per cent of our premium was from the health insurance portfolio which bleed the company.

To cut down the bleeding, The Oriental Insurance replaced the old policies with newer ones-including the ones sold by the banks, reviewed the corporate clients and turned away loss making ones or increased their renewal premium.

“Group health insurance policies that were making a loss for three years were not renewed. In some cases, the renewal premium was increased by 10 per cent,” Singh said.

The Oriental Insurance also declined to renew the group health insurance policy of the Gujarat government which was a huge loss making, he added.

On the retail health insurance side, the company saw only older people getting insured with it which resulted in claims outgo.

“We changed the intermediary commission structure. We reduced the commission from 15 per cent to five per cent in the case of policies covering elderly people. On the other hand, we also increased the commission from 15 per cent to 30 per cent for policies covering younger people,” Singh said.

This resulted in the insurer getting healthy younger people as insured and the risk of claims reduced to a large extent.

That aside, the company is also keeping an eagle eye on its claims processing agencies and the hospitals where its clients are admitted.

“We audit all the health insurance claims beyond a threshold limit. We also do a surprise check at the hospitals. These measures brought down the incurred claims ratio (ICR) of our health insurance business,” Singh said.

Similarly in the case of motor insurance vehicle/own damage business line where the ICR was about 160 per cent, The Oriental Insurance stopped underwriting some heavy commercial vehicles, reduced premium discount and signed up with vehicle dealers.

“The steps reduced the ICR to 125 per cent in the motor insurance business. We also stopped underwriting claims prone industries like plastic, chemicals under other lines of business,” Singh said.

As a part of restructuring exercise, the insurer closed/merged about 200 offices which immediately reduced its rental outgo.

“We have moved our head office to a new building owned by the company in Delhi. Following that, many of our offices functioning in rented premises were moved to our old head office-an owned building,” Singh said.

Further with the claims processing and accounts department functions taken out of the operating offices and centralised, the branch offices with reduced staff moved to smaller and low cost premises, he added.

“The rationalisation of offices is an ongoing exercise and will continue based on their profitability,” Singh said.

The shifting of claims processing to centralised hubs has resulted in better turn-around-time for claims settling and increased customer satisfaction.

According to Singh, the overall claims ratio which was at about 113 per cent during the first half of FY23 has come down by 13 per cent to 100 per cent this fiscal.

“Our target is to reduce the same by a further 5-6 per cent to about 95 per cent,” he said.

While salary accounts for nearly 80 per cent of the people related costs, focus was on cutting down the remaining 20 per cent.

“All the internal meetings went online, thereby cutting down the travel and related expenses. These are little drops which cumulatively give a sizable savings,” Singh said.

More importantly, nearly 45-50 per cent of the workforce have now opted for marketing functions. From being a fixed cost-monthly salary-they have now turned into revenue generating staff.

“As per our assessment, about 50 per cent of the employees who have opted for marketing function are doing well, 25 per cent in an average manner. Some employees have reverted back to their original work,” Singh said.

In the near past, the company had about 16,000 employees and a premium income of about Rs 8,000 crore. Now the numbers have reversed -- last year's premium of about Rs 16,000 crore and a head count of about 7,500 -- which necessitates hiring.

“We will be hiring about 100 specialists -- doctors, engineers. The fresh hiring will be completed by March 2024,” Singh said.

According to him, the current year premium target is about Rs 18,000 crore and the company with a premium income of Rs 9,509.77 crore has achieved more than half of that during the first half of the current fiscal.

The cost cutting measures, coupled with investment income, The Oriental Insurance is expected to turn profitable this fiscal. Last year, there was no surplus cash for investments. Now the cash flow has increased and investments are happening, Singh said.

According to him, the central government is also helpful by announcing that the general insurers owned by it need not be excluded from tenders floated by central public sector undertakings on the grounds of not meeting the solvency norms.

“That apart, the government is also closely and seriously looking at its non-life insurers. The government wants the companies to do well,” Singh said.

Singh agreed that turning the company’s negative net worth of Rs 4,040.54 crore into a positive figure and improving the solvency ratio of 0.99 to 1.5 as per stipulation will take time.

According to him, the company may need a fresh capital infusion of about Rs 5,000 crore to make the negative figures positive.

“We have a good team at the top. Five out of six General Managers are women. All of us know the company’s culture, what would work and what would not. We will certainly be back into profitability soon,” Singh said.