When we made research reports in the 1990s, we used to have one page on risk factors. One of the risks was ‘Regulatory Risk’ – never bothered about it much..

Now if you are the promoter of a life insurance company, your purse will know what is regulatory risk. Thanks to IRDA’s diktat, all life insurance companies are cutting costs, and cutting costs drastically.

So nice to know that I am not in the top management of a life insurance company! Because one of the jobs would have been to sack people – say 780 people out of my team size of 2355 or something like that. Not that sacking should not be done, but even if one of the 780 people had asked me “Joker, why did you recruit just because the others were recruiting, I would not have known where to look!!”.

A couple of companies did it well and started it about 5-6 months back. However all of them are not doing it with the same degree of finesse.

Why a company cannot tell a divisional head: “You need to reduce your total expenses by X Rs. – do it” really beats me. Many people in the financial services industry KNOW that they are grossly over paid (they may not admit it to you!!) – and will be happy to take a 30% cut in salary :). Now suddenly you have 20,000 ex employees of the life insurance companies searching for jobs in banks, brokerage houses, distribution houses, or just about anywhere..

And to think there are some smart people who have a Citibank personal loan (hold your breath) used for funding ESOPs at prices that are currently not worth the demat charges that they are paying…man it hurts.

One stroke of the pen of the Regulator has led to 10,000 (?? not confirmed) sacking of employees, landlords sitting on empty blocks – at least 1000 branch offices have been shut down, EMI on housing loans, EMI on cars…are all under some threat…God what next?

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  1. Subra while I feel for those who are loosing jobs, “stroke of the pen” was much needed. I guess what begins in deceit, ends in suffering for everybody.

  2. Were these jobs required in the first place? Who decided (and on what basis) to recruit all these people? If the business can now go on without these 10,000 odd people, why were they recruited at all? I am sure IRDA did not instruct the Insurance Companies to recruit which means Insurance Companies also to be blamed for this mess. Am I wrong here??

  3. What about the impact in the Mutual Fund Industry (including intermediaries, both National Distributors and IFAs) after the abolotion of entry load in August’09. If you’ve any interesting stats and facts, may be you can enlighten us thro’ a different post?

  4. The promoters of Insurance companies, some of them banks needed this kick in the groin for a long time. The fact that they did not see it coming added to the impact. Employees, investors, business associates etc. all come under stakeholders, who have to carry the risks associated with the business. If you made merry when the party was on, you should not complain when the music stops. Just ‘take it on the groin’ and move on – you can learn your lesson or move onto another emerging scam.

  5. Aniruddha,

    funnily the guys who got them into this trouble have not taken a hit :). It is always a ‘Bali ka bakra’. So the head of a department who got them into trouble is already promoted as ED or MD – HE IS UNTOUCHED..the poor guy who left his job in a pharma company (where he was earning Rs. 400,000) and came to an insurance company which promised RS. 200,000 + Rs. 400,000 incentives HAS BEEN SACKED…not the guys getting Rs. 50L onwards.

    It is just like Obama – look at his team. It comes from Goldman Sachs, Citibank,…etc. Surprising how people who got us into trouble are the same SOLVING the problem. It sounds cruel, does it not? Or does it sound funny?

  6. Agree with Anirudha.One of my acquaintances ,a Electrical Engineer with no background in finance left her job in IBM to join Max New york life Insurance just for the lure of money.Wonder what she would be doing now.

  7. This was probably the need of the hour as every Ram, Shyam and their brother/sister in laws jumped on the gravy train called Life Insurance. When a simple B.com gets at ctc of 20 Lacs plus at the time when the industry is in loss, their is surely something wrong somewhere and things were bound to get corrected. Met quite a few of such lucky(?) fellows and had to really look hard at them to get to judge what did the industry/recruiters/HR heads saw in them to justify such valuations. One of the acquaintaces jumped three insurance companies in a span of 7 months moving from HDFC to Bajaj to finally Reliance Life Insurance, moving from ctc of 10 lacs to 16 lacs to 22 lacs. That too in 2008, when “Recession” was the bizz word. Thankfully, some sense is returning to the Industry.

    While the Chairman, IRDA Mr. J Hari Narayan NOW admits (Interview in MoneyLife Magazine – 23 September issue) “It was wrong for companies to get carried away and sell ULIPs entirely as an investement product” and that “Maybe somewhere along the line, we lost sight of the fact that insurance is a risk cover”, one cannot help but wonder what the regulator was doing when all these companies were making merry at the cost of gullible investor.

    Probably I have some sadistic trait, but good to see them squirming now…LOL.

  8. I do not like the fact that the guys who actually CREATED THE MESS are not the guys who have been hurt. They created the mess, now they are cleaning up – by sacking the people who are 7 steps below them. The Board likes to hear “I sacked 200 people” – so 200 guys earning Rs. 3 lakhs have been sacked. This could have also been achieved by sacking 10 people earning 60 lakhs correct? that has not happened..bali ka bakra theory …

  9. @ Subra I have yet to come across an instance in India where the guys who actually CREATED THE MESS were taken to task! It is always the guy who is most powerless is the fall guy. It is also the easiest option.
    @Sanjeev I am seriously ok with a BCOM guys earning 20L CTC – provided he is ‘earning’ by his diligence and hardwork.

    The issue is insurance industry honchos have taken the customer for a ride and as always the lower rung guys are made to pay!

  10. @SAM,

    I don’t have any issues with a B.Com getting 20Lac or more. What was implied was that when a segment gets paid WITHOUT ANY SEMBLANCE TO HIS ACTUAL WORTH, there is bound to be painful corrections ssoner or later. A person who contributes that much to the organisation he is working for, must and should get rewarded, degree or no degree.

    Regret having not spelt it so.

  11. Sam, Sanjeev

    the capitalists of the world believe that Capitalism corrects all these mistakes. They are wrong. The top executive driven companies (vs. owner driven companies) have a different agenda. IT IS NOT CREATING WEALTH IN THE LONG RUN. It is creating wealth during his tenure. I know of a CEO who is busy spending corporate ad and marketing money to tell the world how great is his contribution – such ads do not help the shareholder.

    Also some industries get paid better than others. Merchant bankers getting paid in a year what a school teacher gets paid in a lifetime is a case in point. Ayn Rand argument is ‘become a merchant bankers’. However the long term impact of paying teachers poorly will be known quite late…

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