The public sector general insurance companies have been losing out to private players for many years now, and the slide continues unabated. According to latest data, the four public sector companies now account for less than a third of the non-life insurance market after losing a further 2% share in FY23.
There is near-unanimity that the slide will continue due to policy flip flops. For example, in his Budget speech in 2018-19, former finance minister Arun Jaitley announced that the three companies – United India Insurance Company Ltd, Oriental Insurance Company Ltd and National Insurance Company Ltd – would be merged into a single insurance entity. Several years have passed since the announcement, and the merger did not occur, but the resulting confusion sent the wrong feelers in the industry.
This wasn’t an exception. Finance minister Nirmala Sitharaman in her Budget for 2021-22 had announced a big-ticket privatisation agenda, which included two public sector banks and one general insurance company. There is now total silence on the issue.
There’s more. Budget 2018-19 had not provided for any capital infusion for the state-run insurance companies, though it gave Rs 2,500 crore, Rs 9,950 crore and Rs 5,000-crore capital to the three loss-making insurers during FY20, FY21 and FY22, respectively.
But the central government decided not to pump in fresh capital in the PSU general insurance companies for 2022-23, even as every company witnessed a sharp deterioration in its solvency ratio since FY19.
FY21 and FY22 were Covid-impacted years, when the general insurance industry had recorded huge underwriting losses as the insurers had to settle massive health insurance claims. Notably, total net losses for Oriental Insurance, United India and National Insurance Company stood at Rs 3,074.66 crore in FY21. For FY22, the total net losses saw a 125% rise to Rs 6929.52 crore.
Net profit of New India Assurance, which leads the non-life insurance space, fell 89% year-on-year to Rs 177.92 crore in FY22 from Rs 1,627.76 crore in FY21.
The solvency ratios for these three companies remained dangerously below the level mandated by insurance regulator Irdai. As per Irdai’s mandate, the minimum solvency ratio an insurer must maintain is 1.5 to lower risks. In terms of solvency margin, the required value is 150%.
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Industry analysts say poor solvency ratios of state-run general insurers are a reflection of slow business growth and inadequate capital infusions from the government against a huge number of Covid treatment related claims. This prevented them from underwriting new business as being loss-making companies, they generally don’t get support from the reinsurers.
A former director of a state-run general insurer said the companies are also hamstrung by their inability to make the right kind of recruitment. In fact, they have witnessed reductions in employee strength in the past few years.
The only profit making state-run general insurer, New India Assurance, witnessed its number of employees shrink by 22% to 13,929 as on March 31, 2022 from 17,880 as on March 31, 2018, according to data on public sector insurance companies revealed by the government in the Rajya Sabha in December last year. Oriental Insurance’s employee strength has fallen sharply by 31% to 9,440 as on March 31, 2022 from 13,667 as on March 31, 2018.
During FY23, every state-run general insurer lost market share in terms of gross direct premium underwritten, amid intense competition from private sector peers, data from the General Insurance Council showed.
“Lately, the government has been encouraging the PSU insurance companies to compete with their private sector peers in an environment where there are enough opportunities to grow on their own and take decisions which will enhance their competitiveness at the market place,” says Bejon Misra, member of advisory committee to Irdai on insurance ombudsman.
Misra says all insurers now have the flexibility to pay commissions to agents as per the new regulations on commission and expenses of management for the insurance industry. Notifying the new payment of commission regulations for the insurance industry, which came into effect from April 1, Irdai has replaced the earlier caps on commission payments in different lines of business with an overall cap on expenses of management at the company level.