Financial Daily from THE HINDU group of publications
Wednesday, Aug 17, 2005
Money & Banking - Life Insurance
LIC turns attention to real estate
Sarbajeet K. Sen
New Delhi , Aug. 16
REAL estate is turning out to be the second love for the Life Insurance Corporation of India. The corporation has decided to direct a major part of its energies at maximising returns from the innumerable properties that it owns, many of which are prime real estate spread across big and small cities in the country.
LIC has for the first time included `growth in income from real estate' as one of the five parameters on which the management would decide the extent of annual productivity-linked lump-sum (PLLI) incentive to be paid to its 1,14,000-odd employees.
LIC sources said that the inclusion of real estate in PLLI means that the corporation's in-house Estates Department would have to work overtime to pursue negotiations and litigation to ensure higher rental income from the property owned by the insurer. "Many lease agreements are decades old and rentals are nowhere near market rates," one source said.
Also making its debut as a parameter for the incentive payment plan is reduction in `early claims ratio'. Sources said that this has been done since the insurer has been facing a major problem on claims made within the first year of a policy.
The three other parameters for the PLLI are growth in new policies, growth in first year premium income and growth in total premium income. Different weights have been assigned for the parameters with total premium income and first year premium income having the highest weightage of 4 each, while income from new policies has a weight of 3 and early claims and rental income have 2 each.
"The calculation of PLLI shall be based on the Weighted Average Method which shall be calculated on the five parameters," the corporation has said.
The PLLI would be fixed within a band of 1 per cent to 6 per cent of the annual wage bill of July 31, 2002, that stood at Rs 2,195 crore. The corporation has since entered into a new five-year wage agreement with the staff starting from August 1, 2002 to hike salaries by 13.3 per cent.
The PLLI would then be distributed among the various classes of employees in the ratio of their pre-revised salary bill to the total wage bill of the corporation.
The corporation has, however, made it clear that incentive to the staff would be paid incentive only if the threshold limit (the minimum set out under the incentive plan) on total premium income is exceeded.
To be eligible for higher incentive, the corporation has set out a detailed chart that provides the levels of business to be achieved beyond the threshold limits that have been fixed under each parameter.
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