Competition regulator smells cartelisation

The finance ministry’s missive to state-run insurers to avoid any competition among themselves has caught the eye of the Competition Commission of India (CCI). The competition watchdog has asked the ministry whether it was encouraging a cartel among the public sector insurance companies.

CCI sent a letter to the Department of Financial Services last month enquiring whether its directions would lead to some sort of cartelisation. It asked the finance ministry to share the letter with it along with the justification for the move. In the absence of any reply from the finance ministry on the issue so far, the CCI is now planning to send a notice to the department to answer its queries. The CCI can launch a probe into the issue if it is not satisfied with the finance ministry’s response.

At the moment, the commission is just enquiring whether reports of a cartel being formed have any substance or not, said a government official familiar with the development.

COVER DRIVE

• The four general insurers are National Insurance Co, Oriental Insurance Co, New India Assurance Co and United India Insurance Co 
• In June, FinMin had asked the four general insurers to increase premium on health insurance policies 
• Insurers were seeing a dip in their net profits, as policies were offered at a premium lower than the total cost incurred by the insurance company on servicing the policy, said FinMin 
• The net combined losses of the four insurance companies on group health insurance alone are estimated at around Rs 1,500 crore in 2011-12

In June this year, the finance ministry had asked the four general insurers —National Insurance Co, Oriental Insurance Co, New India Assurance Co and United India Insurance Co to stop undercutting each other to attract more customers and rather increase premium on health insurance policies.

The instructions were issued after the ministry noticed that fire policies were issued at discount of 80-85 per cent. It said a PSU insurer would not be allowed to take business of another state-run insurance company if the sum assured was over Rs 100 crore for a fire insurance policy. The shift within the government insurance companies was disallowed for group health insurance policies also, provided the existing insurer gave his no-objection.

The net combined losses of the four insurance companies on group health insurance alone are estimated at around Rs 1,500 crore in 2011-12. Their overall underwriting losses stood at Rs 6,134 crore in 2011-12. These losses were due to the lack of prudent underwriting and a very unhealthy and self-destructive inter-company competition among these four companies, the ministry had said.

The industry viewed it as a measure that would curb competition and lead to increase in premiums for the customers.