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Finance ministry cover for PSU insurance 'cartel'

By Niladri Bhattacharya
July 05, 2012 12:26 IST
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Parliament HouseAt a time when the Competition Commission of India has come down hard on 11 cement companies for what it termed 'price collusion' and cartelisation, the finance ministry has asked the four government-owned general insurance companies to 'avoid any competition' among them.

A finance ministry letter addressed to the chairmen and managing directors of these companies in May this year said, "All PSU insurers shall necessarily share the data concerning premium, claims, etc, with respect to major accounts and ensure that there is no competition between them in any corporate/group account."

If an account lies with one of these insurers, then at the time of renewal, the other three insurers will not quote a price lower than that insurer's, to ensure the client is retained.

The letter warned that "any deviation from this instruction will be viewed seriously." Following this, the four state-owned non-life insurers -- National Insurance Co, Oriental Insurance Co, New India Assurance and United India Insurance -- have quietly adopted a strategy of "joint consultation" before underwriting any big risks.

"This is gross violation of free competition. This is jacking up the prices every year when the policies come for renewal," said a risk officer at a private mining company.

The four state-owned non-life insurers account for 56 per cent of the Rs 47,000-crore (Rs 470-billion) non-life insurance market in India.

Under the arrangement, none of these insurers can obtain business from any of the other public sector peers without a prior written and an explicit 'no objection' from

the CMD concerned of the other company.

"Joint consultation before underwriting any big risks shall continue and shall be referred to and examined at the headquarter level in consultation with the other three PSUs, to ensure charging of appropriate premium on the one hand and retention of business with the existing PSU insurer on the other, so as to avoid unhealthy competition amongst the four PSUs," the letter says.

According to sources, this arrangement first started roughly two years ago.

Following the ministry diktat, state-owned general insurance companies had issued internal circulars to their regional officers, mandating them to inform the headquarters for every fresh policy with a net premium of over Rs 1 crore (Rs 10 million).

"If the net premium is Rs 1 crore (Rs 10 million) and above, it falls under the capacity utilisation/competition arrangement of public sector general insurance companies and you may inform the head office for booking lead and inform the other PSGICs to submit a coordinated quote.

"You need to get the rates approved by the HO," a state-owned general insurance company said in a letter addressed to regional officers in August 2010.

Employee health plans, fire and property insurance, aviation premiums, etc, often run into several crores of rupees and are treated as big accounts.

For instance, Air India and Jet Airways paid a premium of around Rs 125 crore (Rs 1.25 billion) and Rs 70 crore (Rs 700 million), respectively, to cover their fleet last year.

Similarly, ONGC paid a premium of nearly Rs 130 crore (Rs 1.3 billion) to cover its assets recently.

Incidentally, most of these accounts are with these four PSU insurers.

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Niladri Bhattacharya in Mumbai
Source: source

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