For the first time govt is looking at fund infusion in insurers on lines of banks
Finance ministry's Department of Financial Services (DFS) has sought a capital infusion of about Rs 4,000 crore for the government-owned three insurance firms – National Insurance Company, United India Insurance and Oriental Insurance Company – in the interim Budget. This is for the first time that the government is looking at a capital infusion in the insurance companies to meet regulatory requirement on the lines of the public sector banks.
As part of the Budget demands, "We have written to the finance ministry seeking Rs 4,000 crore of capital infusion for the three insurance firms. Such a provision, if done, will be done for the first time in the Budget," said a senior ministry official said.
The DFS has also sought Rs 20 crore for creating awareness about its financial inclusion and pension schemes. "We have sought a provision of Rs 20 crore for Jan Dhan as well as Atal Pension Yojna, Pradhan Mantri Jeevan Jyoti Yojna and Pradhan Mantri Suraksha Bima Yojna," another official said.
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 three companies will be merged and then listed on the stock exchange.
The combined entity is likely to become the largest player having 35% share in the non-life insurance market. The merger is likely to be completed in the next financial year.
The profitability of the general insurance companies is under pressure owing to rising underwriting losses and higher claims. The two of these companies are struggling to maintain the solvency ratio. As against the insurance regulator Insurance Regulatory and Development Authority's (IRDA) solvency ratio norm of 1.5, National Insurance has an insolvency ratio of 1.5, while United India's insolvency ratio is comparatively lower at 1.21.
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 come to create the largest general insurance company.
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," a source said. There are around 41,000 employees and 1 lakh agents across the companies. The customer and human resource (HR) operations will be rationalised and merged as part of the plan to merge the three firms.
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