Dr. Daleep Pandita
In a bit of sudden move, Finance Minister in his Budget – 2018 announced merger of three public sector general insurers – Chennai based United India Insurance Company, Kolkata based National Insurance Company and Delhi based Oriental Insurance Company.
The merger of these three general insurance companies having current market share of about 35 percent in Indian general insurance industry with premium of about Rs. 45,000 crore, was intended for their effective utilization of infrastructure, improve solvency margin and efficient penetration of services. This merger leading to the creation of mammoth non-life insurance company in Indian market may fetch better valuation at listings. It is expected to be a major contributor to the disinvestment target of Rs. 80,000 crore set by the Government for fiscal year 2018-19. Post merger, a 10 percent disinvestment in the process can fetch the Government at least 8,000 crore.
Creating a big entity is also a thought to prop up the sagging employee morale, improve operational systems, unlock financial strengths, check unhealthy competition and ultimately improve governance. This merger will result in making a strong entity in Indian general insurance field with higher enterprise value that may lead to higher retention capacity.
Each of these insurers have about 1000 offices besides equal number of extension counters run by nearly 15,000 employees with Rs. 30,000 crores of assets. Currently these insurers are struggling to generate underwriting profits and striving to maintain prescribed solvency margin. Although there was not much of product or service differentiation among the four general insurers resulting into a competition, which by and large remain restricted to price only.
This idea of merger among few public sector general insurers have also found ready acceptance among the heads of these companies. Unlike unions in other public sector organizations, all major unions in public sector insurance companies had demanded merger with another state owned general insurer, New India Assurance company, currently largest non-life insurer in the country.
Unlike the public sector banks in which the Government has been infusing capital to improve their market worthiness, public sector general insurers never got any financial support from the Government. However all these three companies are currently on recovery mode by taking number of corrective measures to cut down their underwriting losses and improve their solvency ratios.
It may not be easy task to merge these three companies who were set up in 1972 upon their nationalisation after affecting merger of so many small general insurance companies. Merger will have lot of complications not only in terms of reationalisation of manpower and offices but also in the legislative processes as the relevant act, General Insurance Business (Nationalisation) Amendment Act of 2002 has to be amended before merger gets finalized. The entire general insurance business in India was nationalized by Government of India through General Insurance Business ( Nationalisation ) Act of 1972, in which 55 Indian insurance companies and 52 general insurance operations of other companies were nationalised.
More than physical merger, emotional integration among the companies is more important. Besides addressing their issues of human resources ( HR ) and office rationalization, all the three merging companies have different Information Technology ( IT ) systems at the operational level and their too many products in market. Data migration and integration will be another challenge. Preservation and streamlining of reinsurance statistics and treaties remain among other issues to be taken care off. Maintenance and integration of information pertaining to third party legal matters going on in courts is a big challenge to this merger process. Such type of problems were not faced in the banking sector, which has recently experienced merger.
Government is aware of all such complications and hiccups. It has already constituted high level committee of insurance experts to suggest roadmap for immediate and effective implementation of this merger. In fact, Government has invited expression of interest from reputed consultants on merging process of these companies for creating enterprise value and shareholders worth better listing. Merger process is likely to be delayed as its exact line can not be stated as of now. Government has made it clear that 2018-19 would be business as usual for customers and stake holders of all the three proposed merging companies. Neither the customers nor the employees of these companies have any ground for any concern. But till then, reason and purpose of this mega merger in Indian insurance industry hangs in suspense.
( The author is Senior Divisional Manager with Government Srinagar)
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