PRESS INFORMATION BUREAU
                        GOVERNMENT OF INDIA
                                 *****

 TEXT OF THE SPEECH OF THE UNION FINANCE MINISTER DELIVERED
   DURING HIS MEETING WITH THE CHAIRMEN OF PUBLIC SECTOR
                    INSURANCE COMPANIES

                                              New Delhi: Jyaistha 23, 1934
                                                            June 13, 2012



     Following is the text of the speech delivered by the Union Finance
Minister Shri Pranab Mukherjee delivered during his meeting with the
Chairmen of Public Sector Insurance Companies here today:-

      I am happy to be with the Chairmen of PSU Insurance Companies today
for reviewing their performance in 2011-12, resolving common issues and
setting out broad strategy framework for the insurance sector during 2012-13
onwards.

       On the economic front, as I pointed out during my meeting with the
CEOs of Public Sector Banks and Financial Institutions yesterday, we faced a
challenging situation in 2011-12. On Insurance Sector front too, there were
natural calamities and catastrophic events in Japan, Thailand and elsewhere
during the year which have affected Indian Insurance Companies.

       I hope that the trough in the rate of growth cycle is behind us.
Specifically in the Insurance Sector, I have had detailed interactions with
IRDA during its last Board Meeting held on 4th April, where number of
regulatory issues were discussed at length and I am hopeful that interactive
process with the insurance regulator and other such associated issues will be
streamlined soon. I am, likewise, happy to be here interacting with all PSU
Insurance Companies after more than 2 years and I am sure it will set a path
of healthy and sustainable insurance growth.






      We have travelled a long distance since the time Insurance was
nationalized in 1956. The growth in premium underwriting has witnessed
strong CAGR of 18.85% since 2001. Insurance penetration and density has
improved since then. The public confidence in the industry is more positive
today then it was earlier. Asia, excluding Japan, will contribute nearly a
quarter of global growth in next 5 years and within Asia, India will be the
fastest growing general insurance market during this period with an average
expected growth of 15%. A welcome feature is that the share of life insurance
premium in the gross domestic savings with the household is about 18% and is
increasing over the years. There are strong underwriting growth drivers. The
demand for insurance products is likely to increase due to growth of household
savings and purchasing power. I wish to highlight these factors to drive home
the fact that despite occasional hiccups, the future also looks bright for the
insurance sector.

      We are all aware that the insurance sector has been contributing
immensely to the infrastructure development of the country.         The total
investments of the PSU insurance companies in infrastructure (as on 31st
March, 2012) were to the tune of Rs.14.26 lakh crores, of which LIC alone has
invested Rs.13 lakh crores.

       In Life sector, LIC continues to be the leader and despite it being an open
market, LIC has a market share of around 81% in terms of new business
policies and 71.3% in terms of new business premium during 2011-12. I
congratulate LIC for being the trust factor among the people. LIC also is
successfully implementing Social Security Schemes ­ Aam Aadmi Bimay
Yojana and Janashree Bima Yojana (JBY). I would advise LIC to work out
"Kisaan Bima Yojana", a life insurance scheme for the farmers on the lines of
JBY where the coverage can be extended up-to the age of 65 or 70 years and
the additional premium could be borne by the farmers covered under the
scheme.

       In agriculture sector, I have noted the progress in terms of coverage of
farmers under agriculture insurance. However, the number of non-loanee
farmers has been coming down over the years. Agriculture Insurance Company
of India Limited (AICL) should work for ensuring not only bringing all loanee
farmers under the cover but also as many non-loanee farmers as possible. I feel
this is the most marginalized group requiring agriculture insurance and should
be covered on priority.

       Reinsurance is an integral part of the insurance sector and GIC is the
sole Indian reinsurer in the country. While the loss of Rs 2490 crores during
2011-12 is largely attributable to the natural catastrophes in Japan and
Thailand and also due to the provisioning on account of motor pool, the larger
policy issue of minimization of exposure risk, diversification of risk, due
diligence while assessing the country specific risk etc remains and I am sure
GIC is making all necessary efforts in this direction.

      I have few concerns in the General Insurance non-life sector where the
insurance market is structurally challenged in terms of profitability. India is
the only country in Asia with a combined ratio of 105 and above consistently
during the last 5 years and all the four PSU General Insurance Companies
have been largely responsible for such a trend.
       The combined ratio for four non-life PSU insurers, which was in the
range of 136% to 140% during 2010-11, has come down and now is in the
range of 120% to 129% for non-life general insurance companies. There is a
desire in general insurance PSUs to grow at a faster rate and be the market
leader. The growth rate in GDPI for all four companies, during last year was
21.39% with a market share of 55.76%. While the emphasis on growth in
premium is understandable, what is however concerning is the underwriting
losses which stood at a whopping 6,134 crore during 2011-12. The overall
profitability clearly is driven by the investment income, with continued
deterioration in the core business of premium underwriting. It is well
understood that growth in top line cannot be at the cost of bottom line. The
Ministry has suggested certain welcome steps to curb the unhealthy
competition in underwriting premiums and it will help restore the sustained
business growth.

       I complement the PSU insurance companies in reaching out to the people
in far-flung areas. However, I have pointed out earlier in my Zonal Meetings the
need to cover all the remaining un-served areas especially district
headquarters. You will agree that the per capita income has grown over the
years and a large number of people in smaller towns are saving and are looking
for insurance products. It is in this regard that we have decided that LIC
as well as PSU general insurance companies shall necessarily have a
presence in all the towns up to Tier IV classification as per census. Such
an early foothold will be advantageous in business sense also to the PSU
Insurance Companies and It should be done without any further delay. A
reorganization of the existing loss making Branches, especially those of
non-life general insurance companies and also de-congestion of branches
which are concentrated in metros can help this expansion in un-served
areas.

      We have recently initiated, as part of Financial Inclusion, a detailed
exercise to ensure the presence of Business Correspondents (BCAs) in all the
revenue villages with a population of two thousand and above. It only makes
business sense for insurance companies to appoint these BCAs as
insurance agents to tap the huge potential of insurance coverage in rural
areas.

     Similarly, other mode of distribution such as Bancassurance must be
adopted in a big way. Out of the available 80,000 bank branches, less than
7000 are being used by PSU insurers and we need to scale up Bancassurance
immediately.

       In order to tap the growing segment of insurable population who is IT
savvy, you all must immediately take the e-governance route and ensure
that all your policies, both new and renewal, are available online. This will
also enable them to have direct access with you and dependence on brokers
will come down. And in the process, some of your savings must be passed on
the customers through discounts. E-governance, issuance of e-policies and e-
payment are no longer options but have become a necessity if one is to survive
in the sector.

      I would also like to highlight the need to ensure that claims are
settled in the shortest possible time frame. I notice that large numbers of
claims, especially in the General Insurance companies, are pending for final
settlement. You may like to take up a drive to ensure that this pendency is
minimized.

      We have a long way to go if we have to grow on a sound footing.
Policyholders trust is of utmost importance and all our functioning should
be geared up with this philosophy. There is also a need to have a balance
between growth and profitability and our strategy in coming years should
be guided accordingly. I have full confidence in all of you and your team and
hope that PSU companies will continue to be the leaders in their respective
segments and in a financially sound and healthy manner.

                                   *******