UIC on growth wheels
United Insurance Company (UIC) came across a host of problems during its operational history of more than 15 years. There was even a time when the Insurance Board had deemed UIC an inefficient institution filled with managerial malpractices. Sunil Devkota, who now serves as its General Manager, had himself led a team that conducted an onsite inspection of UIC on behalf of the Insurance Board during the fiscal year 2057/58 BS. But the downward spiral of the institution has seen a gradual reversal in the last seven years. UIC is now referred as a transparent and growth-centric organisation making heady progress in premium collections. With the gross premium collection of Rs 100 million within the first six months of the current fiscal year, the institution has signalled a shift from its conventional business strategies to more adaptive and productive ideas in sync with the changing market dynamics.
“We reached Rs100 million in terms of premium collection last month,” Devkota informs, “and if the Labour Ministry and the Insurance Board hadn’t snatched from us the opportunity to insure workers going for foreign employment, the amount would have been much higher.” His reference is to the recent government decision that makes it mandatory for the people going for foreign employment to be insured only by life insurance companies.
Currently, UIC holds five product portfolios— fire insurance, marine insurance, motor insurance, engineering insurance and miscellaneous insurance. Net profit of Rs 16 million was earned last year, from the emplyment of above stated portfolios, a whopping 275 percent growth as compared to the net profit of Rs 5.8 million of the preceding year. It was a swift growth as compared to the corresponding period the year before. And in the last six months, the company has collected an impressive Rs 100 million in premium. “We have observed growth in all the portfolios,” Devkota adds. “And we expect to push up the growth figures.”
On this growth drive, UIC is mostly backed by motor insurance, though this portfolio is more exposed to claims and risks. “It is helping us to maintain our cash flow,” he further adds. But the company doesn’t want to embrace motor insurance as its sole competitive edge. It has also diversified into fire insurance, which has also been doing well in terms of policies sold.
UIC currently caters to its clients through branches at Pokhara, Butwal, Biratnagar, Birgunj and Hetauda. This extension spree, however, hasn’t been smooth. They had opened branches at Birgunj and Hetauda earlier which, due to various reasons, couldn’t keep up and had to be closed down. But both branches are doing fine now and yielding the desired results for the company. “We have collected a premium of about Rs 3 million in initial four months from the Birgunj branch and Rs 900 thousand in three months from the Hetauda unit,” Devkota shares. Enthusiastic from the performance of both these recently added branches, the company now plans to open more branches at places like Dhangadi, Nepalgunj, Narayangarh, Dharan and Birtamod. To keep this growth momentum going, Devkota has been holding talks with some re-insurance parties to expand their product portfolios and cater to clients from all walks of life. Some tie-ups have already been made. UIC will soon come up with ‘parking insurance’, an insurance policy that insures vehicles against parking wrecks and thefts, which has been proved a hit in India. They also have their eyes set on providing insurance cover to mountaineers, which is a much sought-after sector, holding great potential as can be observed in other countries with similar tourism positioning as of Nepal. Moreover, UIC is also keen on building ties with overseas insurance companies to improve and enhance its portfolios and services. “This will help us in increasing our business volume,” he says.
UIC has managed a consistent growth in the recent past. Its product line is impressive and its expansion spree looks promising but Devkota is still worried because the company holds smaller market share as compared to other players in the market. “It’s an undesired reality,” Devkota says with a pinch of pain in his voice. Indeed, it’s rather surprising that despite being an old company, UIC has been struggling to create higher brand recall among insurance clients. The company’s market share grew by a meagre 4.65 percent in the fiscal year 2064/65.
SVA Approach
“We have now taken a different route to expand our market share,” he says. It is a general practice among the non-life insurance companies to analyse their performances in terms of gross premium collected, which is not the right approach as companies retain only a negligible portion of the gross premium collected in many portfolios as huge chunk of the gross premium in those portfolios is ceded to the reinsurance companies. “The norm was against us and our shareholders. I asked the Board of Directors to set for us profit targets instead so that we could adopt Shareholders Value Maximisation Approach (SVA). After the proposal received approval, I fixed profit margins for my marketing personnel accordingly. I think no other insurance company has employed SVA as yet. It worked wonders for us. We have earned a net profit of Rs 10 million in the past six months,” Devkota explains about that different route.
The agony of UIC during its formative years can best be illustrated by a simple yet surprising stat: 13 CEOs had come and gone in its 15-year history. In the first six months after Devkota arrived, 19 employees, including three key-level personnel and two managers walked away, almost creating a vacuum at the decision-making level. But the turnover hadn’t happened without a reason. The salary package of UIC was way too thin as compared to other companies and the sense of professionalism and service orientation was almost non-existent. Devkota adopted a series of measures to check the outflow of employees. He sternly stood for an incentive-based salary package, introduced ‘reward-punishment’ method and started reviewing process for marketing personnel. He believes that changes in the management practices increase employee satisfaction, reciprocally increasing business outcomes, including profits. “We value the performance of our employees by offering them incentives and sending them to different trainings and workshops for their overall development. And thanks to these measures, we haven’t had to see a single employee walking away in the last six months,” he explains.
On Growth Wheels
Though the internal matters are mostly sorted out, there still are some external issues that keep casting shadow on the future growth of UIC and other non-insurance companies as well. The fixed tariff that the Insurance Board has set for all non-life insurance companies is far from being implemented in its true spirit, according to Devkota. “No company follows this code of conduct, which has bred unethical practices across the insurance sector, which are spreading like wildfire with the appearance of scores of new players in the market,” he points out. “It is going to have fatal side effects,” he hurries to add. “The whole industry will have to bear the burnt of the blind shots that these newcomers have been calling.”
Devkota is trying to increase the business volume through the enforcement of the claim settlement department— i.e. by speeding up the claim settlement process. “This will translate into more consumer trust and reliability and, subsequently, more clients. However, we are not playing aggressive. We believe that hasty approaches will lead us to nowhere,” he explains. To settle claims quick and easy on part of their clients, Devkota has formed a separate task force led by the Deputy General Manager. And to make the process further effective, he is taking help from an SMS System. As Devkota mentions, this messaging system will act as a mechanism to assist surveyors to follow up straightforwardly into the claims. If a survey report takes more than fifteen days, he is informed through an SMS, calling for his intervention. The claimants are also notified through text messages about the developments in their cases.
Technology
The technological improvisation at UIC has more to offer. The company is planning to revamp its old software and put more advanced system in place. “The older software is unable to locate mistakes in database during the policy issuance process in the absence of audit trail. We are looking forward to install new system to make the entire process flawless within this month,” Devkota informs. With this, UIC aims to turn into one of the most tech-savvy insurance companies, receiving proposals and issuing policies through computer based system only. He also informs that once the new software is fully in place, the SMS system, which is presently being used in the claim settlement procedure, will take care of the underwriting aspects too as renewal notices will be sent via the same system to the clients. “We intend to reduce our management expenses and speed our work procedure, which are often hindered by time consuming paper works,” he adds.
But no matter what technological improvisations a company adopts and whatever internal innovations it applies, its relationship with the regulatory board needs to be rational. It’s not strange anymore to find insurance companies and the regulatory board at loggerheads. Devkota questions the legitimacy of the board itself, saying, “If it can’t book the ones who are operating their businesses unethically, what’s the significance of its existence? It is simply allowing them to create holes in the overall economic structure. It puts ethical companies in ethical dilemma. I wonder whether we should stick to the norms or seek back doors to make things happen,” he laments. Devkota further complains that non-life insurance companies are also aggravated by the pain of disparity in taxation. While life insurance companies are liable to pay only 25 percent as tax, non-life companies have to give out 30 percent. “When our regulator is the same and the nature of work similar, I see no reason for such disparity,” he says.
Devkota says that it’s time for mergers among the insurance companies and sees no logic behind issuing more licenses to newer entrants into the market. “The market is almost saturated. I don’t understand why the regulatory board keeps signing off licenses. It will only seed unhealthy practices in the market,” he adds. Talking about internal challenges, UIC is overstaffed, as Devkota acknowledges, but in the middle of their expansion spree, he intends to create lesser lay offs now to meet their own future demands at these new branches. The growing management expense ratio and the need to pump up salary packages are also causing strain on him as the CEO. “We are seriously looking into these matters. We will soon find a way out,” he informs.
First Six Months Premium Collection of UIC for FY 2064/65 and 2065/66 (In Thousands)
Particulars |
FY 2064/65 |
FY 2065/66 |
Fire Insurance |
15,585 |
21,423 |
Marine Insurance |
6,828 |
6,520 |
Motor Insurance |
51,162 |
54,395 |
Miscellaneous Insurance |
23,574 |
14,180 |
Contractual Risk and Engineering |
2,690 |
3,480 |
Total |
99,829 |
99,998 |
Going Rural
In between organising and enhancing matters of their official interest, UIC plans to go rural, even though the ground policies aren’t so favourable. Their business interest in rural areas revolves around two new portfolios—animal insurance and crop insurance. Devkota says the government should create room for insurance companies to extend their presence in rural areas as it has done in case of banks by supporting them with subsidies. “The government recently announced to waive loans of the small borrowers. We could have insured their loans if the government and the Insurance Board had provided us with the required stimulus,” he says. UIC is also looking into the potentials of aviation insurance. “For this, we will be needing cooperation from other sectors. We are planning for it and for other larger portfolios but all of them will take some more time to come to notice,” he informs.
Out of a few pinches that Devkota often feels is the inability of UIC to give dividends to its shareholders, whether in the form of cash or shares. “All that we have managed to offer them in the last 5 years is 20 percent bonus shares and 40 percent right shares,” Devkota laments. This drag on their performance resulted from a couple of big claims (between Rs 30-40 million) including that from Momento Apparels. UIC hasn’t been able to recover from the shock totally. A lawsuit has been pending at the court regarding that very case. “It has been 3-4 years. We haven’t been able to recover a single penny from these claims. The re-insurers in those have backed out,” he informs. “We paid the claimant as per the decision of the Insurance Board which was ratified by the Appellate Court. When we approached the Insurance Board to coordinate us to recover from the reinsurers share as the claim was paid as per their instruction, they refused to look into it saying that it was a dispute between the insurer and the reinsurer any they (the Nepali authorities) have no jurisdiction over it.”
Against all odds, the company recently celebrated its 15 years of operation and, within the next two years, Devkota wants UIC to be ranked one of the best insurance companies of the country.
