The Hindu Business Line : Public sector insurers wary of SBI’s general insurance biz plans

Bangalore, May 5 With the State Bank of India poised to enter the general insurance business by December, public sector insurers are increasingly becoming tense.

Highly-placed sources said that SBI’s entry was likely to trigger a major shakeout. “We were never worried about the private sector players. But SBI’s entry will change the rules,” sources said. They said that though SBI was yet to formally finalise its joint venture partner for the non-life insurance business, this was of little consequence. SBI is believed to have chosen an Australian partner for its non-life insurance foray.

PSU insurers’ worry stemmed from SBI’s reach and its track record in the life insurance business. SBI Life is currently the third largest private sector insurer, despite being a late starter. SBI’s network of over 10,000 branches and 4,500 branches of subsidiaries (both in the country and outside), gave it considerable distribution reach in the country. The four PSU insurers’ reach is nowhere close to this, even after factoring in bancassurance arrangements.

As a result, there were fears that SBI’s entry would result in further loss of market share, if the life insurance business model was replicated. Already competition from private sector has resulted in PSU market share erosion. PSU insurers, for the last financial year, had a gross market share of 60 per cent and gross premium collection of Rs 28,130 crore.

Banking helps growth

Besides, SBI’s entry comes at a time when reforms in the insurance sector and a free pricing regime have kicked in since the beginning of the last year. Accordingly, there were concerns that pricing was likely to come under further pressure as the SBI group leverages its banking muscle. In fact, some of the private sector general insurers have already taken advantage of their banking parents to grow business. The insurers said the risk business, especially corporate business, was therefore likely to move away from the existing four insurers in favour of SBI.

IPOs

Sources said that the entry would also upset the initial public offering plans of PSU general insurers. Almost all the general insurers have sought Government permission to raise capital. This permission has so far not come, since the amendments to the Insurance Act of 1938 are yet to be passed. So far, general insurers have been able to meet their increased capital requirements through sale of some of the investment portfolios.

For the last financial year, each of the general insurers has earned in excess of Rs 700 crore through sale of investments. But capital increase through such means was not sustainable, sources said. Accordingly, the insurers had sought infusion of additional capital for sustaining the growth. But valuations are likely to be adversely impacted, as competition increased in the markets.

Capital constraints have, in fact, slowed the top line growth of PSU insurers to single digit figures. For the last financial year, PSU insurers grew by only 4 per cent, as against 13 per cent growth by the private sector.

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