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Posts Tagged ‘india’

PSUs: A better half or worse

In Banking, corporate governance, Insurance, Legal, Risk on February 17, 2018 at 4:58 am

PSUs.jpg

Indian PSU’s such as Life Insurance Corporation (LIC) is no doubt a better half of Indian Insurance Industry with total assets of USD 340 billion. Following the leaders from China, Germany, and France (ranked 1st, 2nd and 3rd in Forbes list of Global Insurers), LIC is ranked among top 50 global insurance companies though still unlisted in a global stock exchange where almost all large insurance companies are listed. On the other side, there are several worse halves in Indian financial industry. Post 2007-2008 crisis, bad NPAs in banking and insurance frauds have pushed the liquidity position in Indian financial industry and raised the debates over the inefficiency of PSUs. Almost half of the premium from general and health insurance business in India comes from four large Public Sector General Insurance Companies and more than half from one single public sector life insurance company (LIC). The recent initiative of the government to merge the three worse halves (National Insurance Company, United Indian Insurance Company, and Oriental Insurance Company) to make one better half is one attempt towards providing them strategic direction. In this blog, I am going to discuss what went wrong with these PSUs and how they became the victim of resistance to change (Senge, 2014) and the way forward to become the better half.

Indian PSUs lived on their today with forgone tomorrow and not able to adapt to global practices. For example, when a company is listed in NASDAQ, it has to comply with several rules particularly implementation risk governance and risk management at the holistic level. Implementation of Enterprise Risk Management (ERM) and risk governance takes years to set up infrastructure, create an eco-system for good risk culture and monitoring the risks. Indian PSUs, in general, face several challenges to follow these global practices due to lack of tone from the top.

Challenge 1: We don’t have time for this stuff

After decentralisation in 1997, PSUs had to work hard to remain their market share from aggressive private sector market players. The race of cut-throat competition looks never ending in which PSU adopted a defensive approach. The PSUs senior executives were busy in expansion or retention of market share and others in managing the business operations. Practically, the issue was who has time for risk management in growth-oriented markets. In fact, if the government want them to follow risk management, PSUs need time for reflection and practice.

Challenge 2: We have no help

 If PSUs even accept that implementation of risk governance and risk management is important to maintain their global position and part of the requirement to maintain legitimacy in the international market, who will help them. The PSUs in last few years attempted to execute ERM with the support of some market consultants but found the issues of inadequate coaching, guidance, and support.

Challenge 3: This stuff is not relevant

 PSUs are unaware of the benefits of these global practices due to lack of exposure. Senior executives ask these questions: What I will achieve if I implement risk governance in five years? They are also unaware about why new efforts and learning capabilities are relevant for their business goals. In fact, they face several challenges related to fear, anxiety or concerns for exposure what if the implementation of ERM does not derive any value? This challenge is more related to the negative assessment of the problem.

Challenge 4: We have the right way/they don’t understand us

 PSUs are facing the challenge of overwork. Before decentralisation of 1997, the employees used to work with comfort (10 am to 5 pm) and after entry of private players in the insurance industry, the work pressure suddenly starts percolating. Executives are working day and night with no great appreciation and still called as worse half. New recruitments have been stopped and with under-staffed and over worked departments, the executives are responsible for not only to regain the market position but also to compete in the global market. How is it possible? On the top of that, now the new expectation of adapting ERM and risk governance. Who has time for this stuff? They have the right way but nobody understands them, they have given their whole life for the development of the company but not instead of recognition, the divestment is the worst idea.

Challenge 5: We keep reinventing the wheel

PSUs arguments are based on the premise that okay if world’s top 50 insurance companies are implementing ERM and so we should also implement it. Tell us how they have done it. Why we keep reinventing the same wheel which has been discovered by so many organisations ignoring the current research. A research from Harvard says that there is no one way to implement risk management in an organisation, it depends on the context so it would be different for all organisation. ‘One size does not fit for all’ holds true in case of implementation of ERM (Mikes & Kaplan, 2015).

What may work for PSUs?

Certainly, PSUs need profound change to overcome many challenges they are facing to adopt global practices. Can a short-term training be helpful to PSUs in overcoming those challenges?

Daniel H. Kim, co-founder of the MIT Center for Organisational Learning, found major limitation in the way traditional companies think. His findings revealed that companies would like to mention individual factors critical to success which remain in isolation rather seeing them interrelated sets. For example, companies try to make top 10 risks list or critical factors hampering the achievement of organisational objectives without thinking the key ways in which the risks are related to each other. Then next issue is the companies want to set priorities. He found that list based approach has several problems such as ‘Divide and Conquer Strategy’ where the people do not consider important intersections among different factors. He believed that System thinking and organisation learning can put a theory in place how managerial action can resolve the problems. These learning can be put in PSUs in the current context.

To improve PSUs current position, they can form a group along with private insurance companies to learn risk management at the industry level. My previous two blogs on ‘do Indian Insurance Market need a Professional CRO forum’ and ‘role of CRO Forum’ explain the concept in detail.

See ‘https://finguru.org/2016/01/18/do-indian-insurance-market-need-a-professional-cro-forum/

See https://finguru.org/2016/02/26/role-of-cro-forum-in-india/

The major questions PSUs need to ask before engaging in learning approach:

Why is the change required? What went wrong?

Who wants change to happen? What results are expected?

How the change will happen and who will support it?

Who will be involved and what is our personal contribution and gain?

Peter Senge, Assistant Professor at MIT, believed that to make these learning efforts sustainable, the efforts should be so designed that each effort could learn from each other. A lesson from several kinds of literature for PSUs is: “Don’t try to learn in silos, learn together, learn from others and share learning. Start from small, create trust, set the example, understand interconnected issues, and then resolve critical issues. This way, PSUs can resolve many issues at one go”.

 

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Why entrepreneurs are moving beyond the Next Big Thing to solving the Next Big Problem

In Uncategorized on October 7, 2013 at 12:28 pm

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Buy it on Amazon

A new book, Planet Entrepreneur, published to coincide with the upcoming World Entrepreneurship Forum in Singapore has highlighted the need for entrepreneurs to work with policy makers and world leaders to create a ‘New Humanism’.

From energy to education, social needs to social media, a new generation of global entrepreneurs have the opportunity to fundamentally change the planet for the better.

Whether it is climate change, pollution, poverty, economic stagnation, or underemployment – the world needs innovative, workable solutions more than ever.

Through real-life examples, Planet Entrepreneur explains where the entrepreneurial revolution is headed and explains how anyone can become more entrepreneurial.

Written by members of the World Entrepreneurship Forum, the first global think tank fully dedicated to entrepreneurship, each chapter focuses on different aspects of the challenges and opportunities currently being encountered and solved by entrepreneurs, including:

• The cutting-edge ideas and real-world skills that today’s best entrepreneurs use most often

• Using technology to solve real-world problems

• Social entrepreneurship and the end of charity

• Empowering women and minority entrepreneurs

• The global rise of the self-employed entrepreneur

• Opportunities for improving housing, food, sanitation, among the world’s most needy people

• Making the marriage of business and the environment work for all

• Social media as a launching pad for your ideas

Planet Entrepreneur also outlines how entrepreneurial ‘eco-systems’ can be developed by young and old to provide sustainable growth to benefit the whole planet. From Detroit to Delhi, the teenage tech-whizz and rebel retiree can be part of an entrepreneurial eco-system that helps to provide wealth and social-justice for all.

Planet Entrepreneur explains how the world’s best entrepreneurs are making a profit or meeting a pressing social need, and how you can too. Today’s problems are too urgent and the implications for our future too dire to ignore.

We are now all living on Planet Entrepreneur.

Planet Entrepreneur

Wiley Editions

http://www.world-entrepreneurship-forum.com/NEXTBIGTHING

Buy it on Amazon

Twitter: #ePlanet @WEntFr

How do you perceive risk

In Finance, Insurance, Risk Management on May 7, 2012 at 1:38 pm

Risk perception is the subjective assessment of the probability of a specified type of accident happening and how concerned we are with the consequences. To perceive risk includes evaluations of the probability as well as the consequences of a negative outcome. It may also be argued that as affects related to the activity is an element of risk perception.

how do you perceive risk

Perception of risk goes beyond the individual, and it is a social and cultural construct reflecting values, symbols, history, and ideology.” (Weinstein, 1989).

Risk Perception follows from the specificity and variability of human social existence that it should not simply be presumed that scores and ratings on identical instruments have the same meanings in different contexts” (Boholm, 1998).

Adams (1995) claimed that “the starting point of any theory of risk must be that everyone willingly takes risks”. He concluded that this was not in fact the starting point of most of the literature on risk.

Dodd and Mills, 1985 developed model FADIS (fear of accidental death and injury scale)

There is various perception of risk by key decision maker in insurance organization.

  • Risk perception for human factor – Some financial directors does not consider risk management importance, some consider it very seriously and spend lots of money in buying insurance. Some takes it as financial burden and in other cases it is out of his scope.
  • It depends upon Organization culture and competency.
  • Financial strength and scale of organization is key factor in determining level of loss. Example furniture manufacturing Organization is having higher risk of fire than a Software company.  It is very much possible that a Company like Microsoft, CSC has big risk management department because of its size rather than a small company which even might exposed to higher risk.
  • Culture of market place:  In Dubai, most of insurance company and banks have risk managers and Heads and follow most of the international standards if we see same in India, very few organization have them.
  • Flexibility: Flexibility within an organization that will enable it to meet urgent needs also taken into consideration.
  • Future effect of risk on various activities of organization also needs consideration