Finalising its restructuring plan for the existing state-owned non-life industry, the Centre has decided to delink GIC from its four subsidiaries -- New India Assurance, United India Insurance, Oriental Insurance and National Insurance -- to make it a full-fledged reinsuarnce body.

Ruling out any merger of the four companies, minister of state (banking and insurance) Balasaheb Vikhe Patil in an exclusive interview with The Financial Express said, "We have decided to delink GIC from its subsidiaries and make each of the four outfits a self-managed independent company."

Each of the companies will have freedom to have its own range of products and pricing to meet the demands of the liberalised market.Mr Patil feels that with a vast network as well as workforce, each of the company can have no problem in facing the challenges of competition.

"The companies should reorient themselves," he suggested. On the fate of GIC, Mr Patil said it would be converted into a national reinsurance body as it is already undertaking reinsurance operation.

According to him, conversion of GIC into such a body will be a time-consuming exercise and the government has not decided as yet whether to opt for an amendment in Parliament or promulgate an ordinance. Mr Patil clarified that the government was not keen to set up another coordinating agency to take charge of GIC's supervisory activities of the industry."We are against creating any new bodies to replace GIC. The change of ownership of the four subsidiaries from GIC to a new set is just a technical matter will be sorted out soon," he added. Industry observers have welcomed Mr Patil's initiative. "Each of the companies should consolidate now and launch voluntary retirement schemes to prune the workforce," senior insurance professionals noted.

According to them, the merger of the four companies at present is not the right solution to the problem of competition as merger takes long to be effective and can cause loss of business for the companies.

Pricewaterhouse&Coopers and the Chitle committee, which were appointed by the GIC subcommittee to examine the issue of restructuring, had favoured a merger of the four companies in view of competition.

The domestic general insurance business prior to 1973 was being carried out by 107 private companies. The Government led by Indira Gandhi, through the General Insurance Business (nationalisation) Act 1972,GIC to be reinsurance company nationalised the industry which came into force on January 1, 1973. GIC was incorporated as a company in November 1972 and commenced its business in January 1973. The capital of GIC has been subscribed by the Government of India and that of the four companies by GIC.

The functions of GIC as specified in the Act were, to carry on any part general insurance business as deemed desirable, ``aiding, assisting and advising companies in the matter of setting up standard of conduct and sound practice in general insurance business, (and) advising the four subsidiaries in the matter of investment of funds.