October 14, 2014
The Select Committee of the Rajya Sabha, the upper house of the Parliament of India, which is vetting proposed amendments to the insurance law, is considering a proposal for the merger of the country’s four government-owned general insurance companies which would enable them to consolidate their market share.
Several representations have already reached the Committee and the Finance Ministry for the merger of the insurers, reported the Financial Express.
Employee unions of the four insurers – New India Assurance, National Insurance, United India Insurance and Oriental Insurance – had met Finance Minister Arun Jaitley and proposed a merger to form a single general insurance giant. The four have a combined asset base of over INR1 trillion (US$16.4 billion).
With the opening of the market and entry of private-sector companies in the non-life insurance sector and the ensuing real competition, continuing with the four public-sector insurers “appears meaningless”, said Mr KK Srinivasan, a former member of the Insurance Regulatory and Development Authority.
He noted that the government-run insurers have been losing market share, with their private-sector competitors commanding over 40% of the market. There is cut-throat competition for business. Currently, the general insurance market is served by more than 20 private players.
“The cost saving in merging the brick-and-mortar offices will be huge. Virtually every state capital has an administrative office, for each of the four insurers. Merger will bring down the administrative costs tremendously. Robust computerisation also will help,” Mr Srinivasan said. He pointed to the example of the Life Insurance Corporation of India, the country’s only state-owned life insurer which is the most dominant player in the life sector.”