The market share of National Insurance, Oriental Insurance, United India Insurance and New India Assurance fell below their private peers for the first time in the last financial year. Employee unions of the state-owned companies say a merger will end competition among them and help them reclaim their market leadership.
The share of all public sector general insurance companies, including Agriculture Insurance Company and Export Guarantee Corporation of India, stood at 45.35 per cent. That of private companies stood at 54.65 per cent in FY19, according to data from the Insurance Regulatory and Development Authority of India (IRDAI).
A senior official a state-owned insurer said the government has been vetting the initial merger of United India Insurance, Oriental Insurance and National Insurance, followed by a take-over by New India Assurance. Some other options discussed earlier included creating two public sector general insurance companies, apart from the original vision of merging the three companies, said the official.
As state-owned companies struggled with understaffed offices and capital constraints, the private sector gained a sizeable market share in the last two years through schemes like Prime Minister Fasal Bima Yojna and Ayushman, the flagship crop insurance and health insurance schemes of the government.
“The merger of all the companies would be a better idea than merger of three, as it will become a strong entity and after capital infusion, will be able to underwrite big businesses,” said A E Shantakumar, president of United India Insurance Officers Union.
K Govindan, general secretary of the General Insurance Employees’ All India Association, said his union, which doesn't include officers, is against the merger through a take -over route: merger of United India Insurance, National Insurance and Oriental Insurance and subsequent takeover by New India Assurance, the strongest of the four companies.
“We have been advocating the merger of all the four companies at one go. A takeover would mean unequal terms of employment,” said Govindan.
But for shareholders merging the four companies may make a better deal.
“From the company’s point of view it makes more sense to merge the three (National Insurance, Oriental Insurance and United India) but from the shareholder’s point of view, any time it makes more sense to merge all four. There are question marks as to whether these there who are supposed to merge into one make a healthy company as they have been struggling with their financials. And it is going to be tough to create a healthy organization and maximize shareholders profit by merging the three,” said Ashvin Parekh, MD Ashvin Parekh Asdvisory Service.
According to a top official of a public sector general insurance firm, the merger of four companies would lead to optimum utilization of a large workforce of public sector companies and their integration with digital capabilities to penetrate into rural areas. In keeping with the merger plans, the government had earlier instructed the companies to restructure their business, clean up balance sheets and optimally utilize the workforce, said the official.
At present, the four general insurance companies have workforce of around 70000.
The financial condition of United India Insurance, National Insurance and Oriental Insurance is also worrisome.
Last year, in their presentation to the finance ministry, the three companies—National, United and Oriental Insurance--had stated a collective recapitalisation need of between Rs 9,000 crore and 15,000 crore, with each requiring about Rs 3,000-5,000 crore.
Of the three companies, the solvency ratio of two companies--Oriental and National Insurance--slipped below the regulatory requirement of 1.50 in Q3, states the latest available data.
There has been no recruitment in the public sector general insurance companies since the last one year. According to rough estimates, in the officers’ grade in PSU general insurance firms, close to 600-900 posts are vacant since the last one year. At the clerical and subordinate level, the staff shortage is around 12,000, said sources in the companies. Further, in the next two to three years, about 25 per cent of work force, especially in the clerical level is expected to retire.