The Life Insurance Corporation of India intends to pare management costs by more than half and meet international levels of 3-4 per cent of premium income.

Chairman S B Mathur said the exercise is expected to take three to four years with a focus on reducing cost of collection and containing the wage bill. The management cost ratio stood at 7 per cent-plus as of March 2003.

Since it cannot reduce commissions owing to competition, LIC intends to contain management expenses.

The cost reduction comes at a time when LIC has to look after its bottomline since sales growth has taken a hit and investment income is falling owing to declining interest rates.

"We have decided to keep a watch on overall expenses other than commission to agents. If expenses go up, this should correspond to a rise in business income," said Mathur.

The bottomline of life insurers depends chiefly on product pricing, investment earnings and expenses incurred. Competing with 13 players, LIC cannot afford to increase premium rates either. Further, falling interest rates curb its ability to garner higher investment income.

In an effort to bring down acquisition costs and collection charges, LIC intends to push alternate marketing channels and look at new models to collect premiums. LIC has tied up with banks and corporate agents to push sales.

Today, almost 100 per cent of its sales are through a tied agency force. With improvement in new business income, total commission paid to agents as a percentage of total expenses has risen from 9.13 per cent in 1999-2000 to 9.38 per cent in fiscal 2002.

Since fiscal 2000, ratio of salaries and benefits to employees to total premium income has already started to fall from 9.52 per cent to 6.46 per cent in 2001-02.