The Select Committee of the Rajya Sabha, which is vetting the Insurance Bill, is considering a proposal for the merger of four PSU general insurance companies which will enable them to consolidate their market share and prevent them from becoming sick.
Several representations have already reached the Committee and the finance ministry for the merger of four PSU insurers, said a source.
Employee unions of the four companies ? New India Assurance, National Insurance, United India Insurance and Oriental Insurance had met finance minister Arun Jaitley and proposed a merger to form a single general insurance behemoth to strengthen their market share and become more profitable. The four have a cumulative asset base of over Rs 1 lakh crore.
?With the opening of the market and entry of private sector companies in non-life insurance and the ensuing real competition, continuing with the four PSUs appears meaningless. PSUs are rapidly losing their market share, signalling that the competition in the sector is in full swing. In a decade?s time, the private sector has captured over 40 per cent market share. In sheer desperation in the quest for top line (volume), the four PSUs are in cut-throat competition amongst themselves, trampling their overall profitability,? said KK Srinivasan, former Member of insurance regulator Irda.
He added that they are on their way to become sick if this trend continues. ?There is a strong case for merger of the four and a chance for them to live,? Srinivasan said.
Currently, the general insurance market is served by more than 20 private players.
The General Insurance Business (Nationalisation) Act can be amended to effect the merger. When the general insurance industry was nationalised in 1971, the four PSU companies were set up to create some form of competition.
?The cost saving in merging the brick-and-mortar offices will be huge. Virtually every state capital has an administrative office, for each of the four. Merger will bring down the administrative costs tremendously. Robust computerisation also will help. LIC is a case in point,? Srinivasan said.