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Finmin sets merger of three insurance companies rolling

A blueprint will be prepared to integrate all the branches through a single information technology (IT) platform

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The government has started the process to merge three state-run general insurance companies to create a single, big player with a sizeable presence in health, automobile and industrial insurance sector. The combined entity will become the largest player having 35% share in the non-life insurance market.

Union minister Arun Jaitley had announced in the budget the proposal to merge National Insurance Company, United India Insurance and Oriental Insurance Company.

The government expects the listing of the merged company to contribute significantly to its Rs 80,000 divestment target for the current fiscal.

“We have set the ball rolling for consolidating three public sector insurers. The ministry will soon issue a request for proposal (RFP) to appoint a consultant. The consultant will be asked to submit a report latest by December on the modalities of the merger. It will also oversee the consolidation process,” said an official with direct knowledge of the matter.

A blueprint will be prepared to integrate all the branches through a single information technology (IT) platform. A plan will also be formulated to rationalise and merge the customer and human resources (HR) operations among others.

The three insurers have a total of 4.5 crore policy holders and over Rs 40,000 crore in premiums. Instead of competing with each other, the three players will combine their assets to create the largest general insurance company. The profitability of the general insurance companies is under pressure owing to rising underwriting losses and higher claims.

The consolidation is likely to be completed in this fiscal, followed by an initial public offering (IPO) of the merged entity, finance ministry sources said.

“Right now, we are mulling whether to merge the three insurers first and then put in place the processes related to IT, HR and rationalisation of branches, or do it the other way round,” sources added.

The merger will involve a lot of challenges.

“Everything from the name and the logo to IT system has to undergo change. This merger is different from the recent ones,” said sources, citing the case of the State Bank of India (SBI) where most processes and IT systems across bank branches were similar.

The two big challenges will be the integration of IT platforms and dealing with the HR issues. The three companies use different IT platforms and integrating them will be a huge challenge. Then, there are customer issues, and legal complications involved in the closure of branches. The rationalisation of branches will be another challenge.

The three companies have 6,000 branches spread all across the country. “About 30-40% of the branches will have to be closed down. Some staff members may be offered voluntary retirement scheme (VRS) as the new company will require people with new skill sets,” sources said. There are around 41,000 employees and 1 lakh agents across the companies.

The consolidation of three leading public sector insurers will create the largest general insurance company with 35% market share, followed by New India Assurance with 15% market share. The private sector as a whole has a 54% market share.

BIGGER UMBRELLA

  • A blueprint will be prepared to integrate all the branches through a single information technology (IT) platform
     
  • A plan to rationalise, merge the customer and human resource (HR) operations will also be formulated
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