The government has decided against the proposed merger of non-life public sector insurance companies, as outlined in the Budget of FY19. The decision was revealed by the Department of Financial Services to the parliamentary standing committee on finance.
The move holds particular significance as the government had previously attributed a portion of the companies’ losses to unhealthy competition, with public sector entities undercutting each other in pursuit of top-line growth.
The standing committee on finance recently released its report on the performance review and regulation of the insurance sector. In the report, the committee recommended that the government amend laws to reduce GST on health and term insurance, lower capital requirements for micro-insurers, and enable the issuance of composite licenses, allowing insurers to undertake both life and non-life insurance.
Former Finance Minister Arun Jaitley had announced in his 2018 Budget speech planned to merge three public sector general insurance companies – National Insurance Company, United India Assurance Company, and Oriental India Insurance Company – into a single entity, subsequently to be listed. However, despite this announcement, the government continued to inject capital into these non-life companies in subsequent years.
In 2021, Finance Minister Nirmala Sitharaman mentioned the government’s intention to divest stake in one public sector general insurance company but did not specify whether this would entail consolidation.
Responding to the committee’s queries, the Department of Financial Services clarified that the cabinet had made a decision in 2020 to halt the merger process.
Notably, the Additional Secretary of the Department of Financial Services, while deposing before the parliamentary committee, highlighted the issue of the general insurance companies’ portfolio composition. It was revealed that approximately 50% of their portfolio comprises health insurance, 40% motor insurance, with only 10% allocated to other lines of business.
This decision marks a significant shift in the government’s strategy concerning the restructuring of the non-life insurance sector, reflecting the complexities and challenges inherent in balancing competition and consolidation within the public sector.
