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From merger, govt now looks to de-merge 3 PSU insurers then look for strategic sale
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SME Times News Bureau | 24 Jun, 2019
With its plans on consolidation in the insurance sector hitting several
hurdles, the government has started exploring different options
including de-merging three of its big-size general insurance companies
into smaller units and then look at strategic sale of few operations to
the private sector.
The Finance Ministry earlier considered
merging three public sector general insurance firms -- National
Insurance Company, United India Insurance Company and Oriental India
Insurance Company barring New India Assurance -- to create one large and
strong entity.
Official sources said that de-merger plan has now
been brought to the table after a series of stakeholders meetings and
this has now become one of the options 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
rationalization/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 source added.
Post
de-merger, a fresh assessment could be made about privatising some of
the insurance operations by offering them to strategic investors. It is
believed that strategic sale of smaller units may be easier to undertake
and can get better valuations.
Moreover, smaller units would also help to scale up regional branches and improve insurance penetration.
The
government had announced merger of three public sector general
insurance firms in the Budget 2018. The move was billed as the
biggest-ever merger in the insurance sector with the new entity having a
valuation exceeding Rs 1 lakh crore. It intended to complete the
exercise in FY19 itself.
But since then, the merger proposal has
moved at a snail's pace and has encountered several hurdles. Earlier
this year the merger plan hit a roadblock when the Department of
Financial Services (DFS), which oversees the operations of state-owned
insurance firms, wrote to DIPAM not to proceed with the merger plan in
haste and examine the proposal afresh and untangle complex operational
issues first.
One of the issues in merger is also poor financial
health of two out of three insurance entities that continues to remain
in losses. In the quarter ended September last year, the three insurers
had posted a combined loss of around Rs 1,800 crore. Moreover, a few of
the insurance firms have also lost market share. In fact, PSUs insurers'
market share has fallen from a level of 56 per cent in FY13 to 51 per
cent in FY18.
As part of strengthening exercise, government has
also directed the firms to undertake monetising their assets including
real estate to raise revenues. It is expected that capital support to
the tune of Rs 4,000 may also come from the Centre for these insurance
firms.
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.
The insurance density in
India (ratio of premium to total population) is $73 compared with
average world insurance density of $650.
Insurance penetration
in India is at 3.69 per cent compared with world average of 6.13 per
cent. The penetration in general insurance sector is still less than 1
per cent.
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