COVID-19 impact | Life insurance companies may shut down nearly 1,000 branches to cut costs

Companies across sectors have been struggling to work out ways to cut costs to counter the impact of coronavirus (COVID-19). Life insurance companies for one are hoping to save on costs by reducing branch presence.

Sources in the insurance industry told Moneycontrol that by mid FY22, about 6-8 percent of the 11,600 branches could be cut down in a bid to save money. Branches in close proximity to large cities with internet connectivity are likely to be the first victims.

"Digital has seen a wider presence across the country, especially in metro cities. Hence the idea is to leverage this strength rather than investing into branch real estate," said the chief distribution officer at a private life insurance company.

Currently, banks and agents are the two largest distribution channels for life insurance companies. Online sales constitute less than 10 percent of the total premium collected.

However, ever since a nationwide lockdown was announced on March 25 to minimise COVID-19 spread, life insurers have been forced to move operations online. These insurers have now been selling through the own company website, bank websites as well as through video calls with customers.

Life insurance companies saw a 32.2 percent year-on-year (YoY) decrease in the new premium collection to Rs 25,409.30 crore in March 2020 amidst the coronavirus pandemic leading to a lockdown across the country.

Similarly, for April 2020, the first-year premium collections declined 32.6 percent year-on-year (YoY) to Rs 6,727.74 crore in April 2020.

Since face-to-face sales have not yet resumed in most parts of the country, product sales have seen a dip.

In large cities like Mumbai, Delhi and Bangalore, commercial real estate costs have been high.

For instance, the rent for a 700 square feet office space in South Mumbai could range between Rs 65,000-80,000 per month. Added to this are electricity and water expenses and administrative costs of hiring housekeeping persons, canteen staff among others.

At a time when business is seeing a dip every month, insurers are looking to conserve cash for business purposes. Branch walk-ins are close to zero and despite this, monthly rental costs are being incurred.

“The idea is to review if there is a need to have multiple branches in cities at a time when business continuity is at risk. However, the branch reduction will be gradual,” said the chief executive of a private life insurer.

Across the life insurance industry, business strategy groups of companies are deciding which would be the branches and how will the manpower be reshuffled.

In the initial stage, branches with low productivity in terms of policy sales would be chosen. Later, a review would be done on a per-city basis to look at the cost of running every branch and which ones could be shut down.

However, branches in smaller towns with low internet connectivity would be retained to ensure customers have access to company representatives for buying policies, filing claims and after-sales servicing.

If it is feasible, life insurance chiefs said that the branch staff would be relocated to other branches.

However, insiders told Moneycontrol that job losses would be inevitable in the long term.

The human resource head of a mid-size insurer said that each branch would employ about 50-70 people and not all of them would be shifted to other branches.

“Each branch has a few people whose roles would become redundant once the unit closes. These persons would have to face job cuts,” he added.

The life insurance industry employs 300,000 people as direct employees who work on a full-time basis with the companies.

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