Govt abandons plan to merge 3 PSU insurers, looks at demerger: report
26 Jun 2019
The government is reported to have abandoned plans for merger of three state-run general insurance companies and has instead started exploring options, including de-merger of three of the major insurers into smaller units and then look at strategic sale of operations to private sector, say reports.
The finance ministry had earlier proposed consolidation of operations of three of the four major state-run general insurance companies, including National Insurance Company, United India Insurance Company and Oriental India Insurance Company and excluding New India Assurance, to create a global scale entity.
The government had announced merger of three public sector general insurance firms in the Budget 2018. But the proposal has moved at a snail's pace and has encountered several hurdles.
Earlier this year, the Department of Financial Services (DFS), which oversees the operations of state-owned insurance firms, wrote to the Department of Investment and Public Asset Management (DIPAM) not to proceed with the merger plan in haste without solving complex operational issues.
An IANS report quoting official sources said the de-merger plan has now been brought to the table after a series of stakeholders meetings failed to arrive at a solution the only option before the finance ministry to make state-owned entities more focused on the task of increasing insurance penetration in the country.
"The idea to merge PSU insurers is fraught with problems as one giant entity would be difficult to administer and manage. Moreover, this might lead to branch rationalisation/closure and major job losses in the sector," said an official source.
"De-merger of big-size PSUs into smaller units, on the other hand, would enable ease in administration and further increase in reach of these to the masses with improved and more effective focus and management," the report quoted sources as saying.
Post de-merger, the government proposes to undertake a fresh assessment about privatising some of the insurance operations by offering them to strategic investors. The sale of smaller units may be easier and would offer better valuations.
Moreover, smaller units would also help to scale up regional branches and improve insurance penetration.
Also, two of the three insurance majors were in poor financial health. In the quarter ended September last year, the three insurers had posted a combined loss of around Rs1,800 crore, besides losing market share to private firms.
In fact, PSUs insurers' market share has fallen from a level of 56 per cent in FY13 to 51 per cent in FY18.
The government’s solution to this was sale of assets in the absence of profits> It had directed the firms to undertake monetising their assets, including real estate, to raise revenues.
The general insurance market in the country comprises 27 companies, including the four major PSU entities, 23 private players and six are stand alone health insurers.