Life Insurers Close Branches To Save Cost | Royal Sundaram
My Digital FC, 01 January, 2012
Life Insurers Close Branches To Save Cost
Place : Chennai
Life insurance companies have been closing branches and downsizing employee headcount as major cost-cutting initiatives due to the downside seen in the life insurance business over the past year.
Life insurance companies in India closed down at least 453 branches to bring down the total branch count to 11,446 for the period ended September 2011, against 11,899 branches at the end of September 2010. Correspondingly, the number of direct employees working for life insurance companies also fell by almost 17,000 to 2.47 lakh as of September 2011, according to data available with the Life Insurance Council.
When insurance companies
expanded operations, they set up new branches that helped improve business. Now, with business itself shrinking, following the fall in revenue and stock market downturn, it is natural that the axe first falls on downsizing employee strength and branches as measures for cost cutting and rationalisation of expenses.
New business premium for life insurance companies fell by 18 per cent to Rs 62,426 crore for the April-November 2011 period, compared with the corresponding period last year.
"After the 2008 global financial meltdown, the new companies did not open or add branches aggressively. It is the bigger and older companies that had to downsize operations following the slowdown. Now, I think, the downsizing has reached a plateau and I hope to see no further contractions," SB Mathur, secretary general, Life Insurance Council, told Financial Chronicle.
According to the regulator, the Insurance Regulatory and Development Authority (Irda), private life insurers closed 593 branches in the year 2010-11, while the public sector insurer, Life Insurance Corporation of India (LIC), set up 121 new offices. The largest private insurance player, ICICI Prudential Life, alone closed 100 branches in the past year to bring down its branch network to 1,400. Company officials refused to comment on the issue.
"For life insurance companies, new business comes in largely from the agent network or even the bancassurance channel. Company branches are largely service centres that perform functions like claims settlement, collections or grievance redressal. Any new branch takes about three to four years to become financially viable. If the total business itself is falling, then, it may not make sense to keep branches alive and functioning," Mathur says.
"When you are trying to consolidate operations in a tough business environment, closing down unviable branches becomes inevitable. The closedown has happened across metros, tier-I, and tier-II markets," says GV Nageswara Rao, MD and CEO, IDBI Federal Life Insurance.
With the last quarter of the financial year, which is one of the best times for life insurance companies, set to begin, the industry is hoping the business growth to turn positive. Industry members say third quarter numbers would be a strong indicator of what the future holds for life insurers.