Fear of competition from banks will see a number of development officers (DOs) of state-owned general insurance companies opting for the voluntary retirement scheme (VRS) approved by the finance ministry.
Through a one-time settlement of Rs 950 crore, the four state-owned general insurers hope to wipe out their yearly outgo of more than Rs 250 crore in terms of incentives paid to DOs.
The four general insurers have indicated in their talks with the unions to curtail the 12,000-strong sales force through the VRS.
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According to ministry sources, development officers will be offered a package similar to that of nationalised banks. That is, 60-days pay for every completed year of service or pay for the number of years left in service, whichever is less.
While many DOs fail to view the package as being attractive, many others are likely to take VRS, fearing their inability to perform with the entry of banks as corporate insurance agents. "A large amount of business is likely to be diverted to banks, acting as corporate agents for insurance companies, especially in the rural areas," a development officer with the New India Assurance Company said.
Under the proposed amendment to the terms and conditions of employment of DOs, they will be terminated from their profession should they prove not to have performed after five years. Earlier, the termination clause was applicable after eight years.
Management at the state insurance companies fear the role of development officers as being redundant following the introduction of new intermediaries including brokers and corporate agents.
Today development officers bring in 50 per cent of the premium income for companies and earn a commission based on the growth of business and the profitability. However, this is today capped at 24 times their basic salary, the highest commission thus payable amounts to Rs 2.5 lakh. At present, the 12,000 development officers cause a drain of around Rs 250 crore a year in terms of incentives payable for bringing in business.
Under the proposed scheme, DOs who choose to stay back in the profession, will earn a maximum of 5 per cent on the profitability of the business. "We still feel this is more attractive than our taking VRS," said a development officer who has been bringing in Rs 4.5 crore of premium annually.