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Nirmala Sitharaman’s Maiden Budget Should Lay Roadmap For PSU General Insurers’ Merger’

Nirmala Sitharaman’s Maiden Budget Should Lay Roadmap For PSU General Insurers’ Merger’

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  1 July 2019 9:53 AM GMT

Chennai: Finance Minister Nirmala Sitharaman in her maiden budget speech on July 5 should give a short and stern message to the heads of three government-owned general insurers to focus on bottomline growth and outline the roadmap for their merger, say industry experts.

The three companies are National Insurance, Oriental Insurance and United India Insurance.

At a time when consolidation is happening among the private general insurers, experts to whom IANS spoke to were baffled at the government’s idea of demerger instead of merging the three firms as announced earlier.

The experts also voiced their opposition to another government-owned general insurer, New India Assurance, that went public taking over the other three companies or taking substantial stake in the company that emerge after their merger.

“New India taking over substantial stake in the new entity that is formed after merging the three companies, is like putting good money after bad money,” R. Raghavan, former General Manager, General Insurance Corporation of India and the founder-CEO of the Insurance Information Bureau.

“The Finance Minister should give a stern direction to the heads of PSU general insurers to focus on growing their profits than the topline. The three PSUs are undercutting each other to grow their gross premium income,” an expert told IANS on the condition of anonymity.

In his 2018 budget speech, then Finance Minister Arun Jaitley announced the government’s decision to merge National Insurance, United India and the Oriental Insurance Company and list it in the bourses.

“Subsequently the government had selected EY as the consultant to advise on the merger. The consultant is yet to initiate its job, as informed to us by GIPSA (General Insurance Public Sector Association),” Sanjay Jha, Secretary Standing Committee (General Insurance) All India Insurance Employees Association (AIIEA), told IANS.

However there was no progress after that.

“With the continuity in the elected government ensured, hope of action on the merger of the three PSU general insurers, is bound to gather momentum now,” K.K. Srinivasan, former member, Insurance Regulatory and Development Authority of India (IRDAI), told IANS.

According to Srinivasan, merger of three weak companies may not immediately create one strong company. But it will surely eliminate suicidal business competition among them.

“After the budget speech of 2018-19, there was a period of uncertainty, coupled delays in appointment of Chairman and Managing Directors (CMD) of two out of three companies appears to have adversely affected the performance of the three. Any further inaction will not augur well for the health of these companies,” Srinivasan said.

Speaking about the demerger idea - breaking the PSUs into smaller outfits - Srinivasan said it does not appear to be realistic as it would result in creation of more government owned companies.

“For multi-line general insurers there are inherent synergies and cross subsidisation. For the PSUs that are in existence for the past several decades the synergies get inbuilt. As a result, demerger will not work,” an industry expert preferring anonymity said. (IANS)

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