Ashwani Mahajan
The merger of the three public sector general insurance companies (PSGICs), Oriental Insurance Company, United Insurance Company and National Insurance Company is on cards. The logic of the NITI Aayog and the people in the Government system, who are making case for their merger, is that these insurance companies are incurring huge losses and are not fulfilling the efficiency norms. Their merger will pave way for building a big insurance company, which can achieve efficiency norms by reducing number of, what they say, surplus employees.
Although many people in the country, including employees of these insurance companies, are opposed to this merger, but despite this the merger of these Government insurance companies is being continuously pushed forward. Therefore, it is necessary to analyze this issue and understand that whether the merger of these insurance companies is in the national interest or not? If Government companies suffer losses, what are the reasons? Are they really incompetent? Will their merger help in the development of insurance sector in the country? Will spread of insurance business to rural and far flung areas, be helped or otherwise, once these PSGICs are merged?
Government insurance companies and development of insurance
It is worth noting that the total number of branches of PSGICs is 8150, out of which 4247 branches are in big cities with population of more than one lakh, the remaining 3903 branches are in small towns. On the other hand, out of 2459 branches of private insurance companies, 2301 are in big cities and only 158 are in small towns.
We can understand that Public Sector insurance companies have an important role in rural areas and small towns. Not only the branches, even the employees of private companies are very less, due to which their reach to customers is much less than the public sector companies.
Why public sector companies are in losses?
Since Prime Minister Narendra Modi assumed Government, insurance schemes have been increasingly used as a tool of social security. Many insurance schemes have been implemented in the last 5 years to promote social welfare. Under the Pradhan Mantri Jeevan Jyoti Bima Yojana, any bank account holder between the age of 18 to 50 years has been provided with an insurance cover of rupees 2 lakh at a premium of only rupees 330 per annum, in which the family members are provided the sum after the death of that person for any reason. Under the Pradhan Mantri Suraksha Bima Yojana, the bank account holders in the age group of 18 to 70 are provided Rs. 1 lakh for partial disability and Rs. 2 lakh for complete disability at a nominal premium of Rs. 12 per year. Under the Pradhan Mantri Fasal Bima Yojna, provision is made to compensate the farmers for loss of crop. This scheme is said to be better than previous crop insurance schemes. Under the Pradhan Mantri Jan Arogya Yojana i.e. Ayushman Bharat Yojana, there is a provision to provide free treatment to 50 crore people up to Rs 5 lakh. No premium is charged from the beneficiaries, and whole of insurance premium or contribution is made by the Government itself.
Obviously all these schemes are essentially social welfare schemes. Their premium is either zero for the beneficiaries or has been deliberately kept very low. The reason for this is that the Government wants to provide social security through these insurance schemes. In principle, there was a provision to implement all these insurance schemes by both private and public insurance companies. However, unfortunately these insurance schemes were either not implemented at all by private sector insurance companies, or only the creamy parts were implemented by private sector insurance companies and the rest was left to the public sector companies. Even where the private sector implemented the schemes, the compensation paid by them was far less than the compensation given by the public sector companies.
Public sector companies: the carrier of social security
Pradhan Mantri Suraksha Bima Yojana, which is an accident insurance scheme, is available for only Rs. 12 annually. 90 per cent of the business of this scheme is done by the public sector companies, with a loss of 221 per cent. Private companies have generally opted out of the scheme. The Pradhan Mantri Fasal Bima Yojana is also being provided by public sector insurance companies in 50 per cent drought prone areas, in which they suffer 115 per cent loss, while private companies provide crop insurance only in better areas, where they have a loss of 60 per cent only. Many times farmers are left at the mercy of private companies and companies do not compensate farmers even after charging hefty premium from them. This makes the farmers suffer losses despite all good features of the scheme. This brings bad name to the Government too.
Its notable that National Health Insurance Scheme / Ayushman Bharat etc. are also being run by the public sector insurance companies or being governed by trusts made for this purpose, and a very small part is being served by private companies. It is worth noting that public sector companies are incurring 110 per cent loss on these schemes, while the proportion of loss is only 90 per cent in case of private companies. A simple calculation reveals that losses incurred by public sector insurance companies on account of these Government’s schemes was nearly rupees 7000 crores in the last 3 years between the 2016-17 and 2018-19.
It is clear that on the one hand, the government insurance companies are being compelled to serve government’s social security/ welfare schemes and they are incurring losses due to this reason; and at the same time they are being accused of not earning sufficient profits and therefore are being said to be inefficient. For example, in the personal accident insurance scheme, only Rs 12 is collected annually and the insurance company gets only 10 rupees out of it, whereas the loss ratio in that scheme is 221 percent and 90 percent of this accident insurance scheme is from the public sector insurance companies. It can easily be understood that the public sector insurance companies are bearing the whole burden of Government schemes due to the control of the government. Though there is no mistake in the schemes of the government, but it has to be understood that these are for social welfare, so the Government should bear burden of the same and logically and therefore PSGICs should be compensated for any losses occurring due to these schemes. Being forced into the first merger and subsequent dissolution, it will be neither in the interest of these insurance companies, nor in the interest of society nor the government.
It is necessary for the public sector insurance companies to be healthy and efficient so that in future also the social welfare insurance schemes run by the Government can be carried forward. At present, about half of the branches of public sector insurance companies are in rural areas and they have a large staffing system, which makes it easy to access insurance in rural areas. Today, the penetration of insurance in the country is only 3.69 percent of GDP. If this spread is to be expanded, then a major role of public sector insurance companies cannot be denied.
(The author is Associate Professor, Department of Economics, P.G.D.A.V. College (University of Delhi)
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