The Hindu Business Line : Govt looking at merger of PSU general insurance cos

After sparking off an intense debate on the need to merge public sector banks, the Ministry of Finance has now initiated discussions on catalysing consolidation among the four public sector non-life insurance companies.

The options for restructuring the State-owned companies are being thrashed out by the Ministry with the General Insurance Public Sector Association, a body representing the managements of the four insurance companies. The Government-owned non-life insurance companies are Oriental Insurance, New India Assurance, National Insurance and United India Insurance, having headquarters in New Delhi, Mumbai, Kolkata and Chennai respectively.

Officials said that options under consideration range between merging all four companies into a single new entity thereby creating the non-life version of the Life Insurance Corporation (LIC) or to have two mergers, thereby reducing the number of companies from four to two.

"The discussions for merger are very much on. However, we do not want to rush into anything. Before any decision on the merger process is taken we have take into consideration several issues, including the ticklish human resource issue," senior Finance Ministry officials said.

A major issue that is bothering the Government is whether reduction of competition through mergers would turn out to be inimical to the interests of the insurance industry and the consumers.

"At present, we have four public sector companies taking on eight private non-life companies. If we merge all four into one entity we would, in fact, be reducing the element of competition in the sector. We are debating whether this would be in the interest of the industry and the consumers," an official said.

He said that the other issues under discussion are the likely problems on inter-se seniority for officials of the merging entities and the manner in which branches of the companies would be rationalised to avoid sparking off staff problems.

"While branch rationalisation might be good for the public given the fact that lot of branches of different companies are located in close proximity to each other, the employees do not always welcome such moves," officials said.

The arguments backing the mergers are that a larger Government-owned entity might be able to effectively tackle the aggressive private players besides being able to retain a higher proportion underwritten business by reducing the reinsurance requirements.

Moreover, they said that the aim would also be to increase insurance penetration much beyond the existing levels. "At present, the 4,000-odd branches of the four companies do not reach beyond the district level. A merger could reduce duplication and allow at least half of the branches to relocate to the block or the taluk level," the official said.

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