Insuring the insurers

The passage of the General Insurance Bill has drawn criticism for the absence of discussion and debate in Parliament. However, it cannot be denied that the amendments to the General Insurance Business (Nationalisation) Act, 1972, made in the Bill, were, in fact, necessary to keep the three unlisted public sector general insurers afloat and prevent a crisis in the sector. The amendment allows the central government to hold less than 51 per cent in General Insurance Corporation, National Insurance Company, Oriental Insurance Company, United India Insurance and New India Assurance Company, paving the way for a strategic sale in these insurers to a private entity. The buyer would have the freedom to bring about changes in the operations of the company. While the Centre has stated that the objective of the Bill is to increase public participation in these companies, it may not be easy to make a public offer of the three unlisted public sector general insurance companies — National Insurance, Oriental Insurance and United India Insurance. This is because these companies are poorly run and have weak financial metrics. Their actuarial skills are not in sync with the competition. Strategic stake sale therefore appears to be the best option. The interests of policyholders and the employees will also be better served.

The woeful performance of Oriental Insurance, United India and National Insurance has taken them to the brink of insolvency, with the Centre bailing them out in the recent past. The change in regulations regarding motor insurance and the large health insurance claims due to Covid-19 have further weakened their finances. The Centre’s earlier plan to merge the three insurers and then offer the share of the merged entity to the public had to be shelved due to sinking profitability. The solvency ratio, that measures the extent to which the assets of an insurer covers its liabilities or future payments has declined to 0.02, 0.92 and 0.30 for National, Oriental and United India insurance respectively, towards the end of last March. This is far lower than the prescribed ratio of 1.5 times. The combined ratio, that measures the claims as well as expenses against premium received is also extremely high for these players, between 120 and 160 per cent. The Centre had to infuse Rs 12,450 crore in these companies last July to keep them solvent. They could need more funds this year as well.

While government sponsored socially oriented insurance schemes such as Fasal Bima Yojana may be impacted by such privatisation, insurance on other counts (motor, accident, fire and marine) is paid for by those who can afford to do so. The Centre must devise a way to deal with apprehensions regarding such sponsored schemes, even as these entities are purchased by a strategic buyer. The three unlisted insurers hold around 25 per cent share in the Indian general insurance market. Private general insurers may be keen on these entities for their large client base and branch network. The roadmap must be carefully drawn by the Centre so that all stakeholders’ interests are considered.

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