Following the government’s announcement in the last Budget of a merger of three public sector insurance companies, a committee comprising senior executives of the three firms have been formed to assess the conditions of the merger.
Though modalities are likely to be finalised by the end of this financial year, the merger may be pushed to the next financial year.
The decision to form a committee, the first step towards forming the insurance behemoth, was taken during a meeting of the finance ministry with the heads of National Insurance Company (NIC), United India Insurance Company and Oriental Insurance Company, a few weeks ago. The committee's first meeting will take place soon.
The panel members will chalk out ways for effective utilisation of a sum of about Rs 750 billion and for managing a workforce of 42,000 employees. This apart, issues like products, office integration, and maintaining brand quality are the other aspects that will be discussed.
“We hope that by the end of 2018-19, we will have more clarity on the merger, ” said a senior executive of one of the insurance firms.
Despite huge investments, public sector general insurance companies are facing a high claim ratio, falling profitability and poor solvency ratios. At the end of March 3, 2017, the total investments of the four insurance firms, including New India Assurance, were Rs 1.389 trillion, revealed a recent report by the Insurance Regulatory and Development Authority of India (IRDA). By the end of March 2017, the solvency ratio of National Insurance Company was 1.90 and those of Oriental Insurance and United India Insurance were 1.11 and 1.15, respectively.
The IRDA mandates a minimum solvency requirement of 1.50.
The market share of public sector insurance companies fell from 57 per cent in 2010 to 50 per cent in the first half of 2016-17, according to ICRA. Private insurers have been aggressive in capturing the retail market.