The government had cited financial weakness as the primary reason behind its decision for the proposed merger of GICs
In a meeting held earlier this week, finance ministry officials asked the chairman and managing directors of the government-controlled non-life insurance companies to fasten the merger process of the country's three general insurance companies (GICs)- National Insurance Co, Oriental Insurance Co and United India Insurance Co. The government wants the merger to be completed by March 31, 2019.
During the Union Budget on February 1, 2018, finance minister Arun Jaitley had proposed the merger of these three PSU general insurers and said the unified entity post the merger could be listed on the stock exchanges. The government had cited financial weakness as the primary reason behind its decision for the proposed merger of GICs.
According to finance minister, the combined entity would hold 32% of the total market share, which will be nearly double of New India Assurance Co that has a total market share of 15.06%. Initial estimates suggest that this will be the largest non-life insurance company valued at about Rs 1.2-1.5 lakh crore.
During the meeting, the decision to open tenders for the appointment of external consultant agency along with terms and conditions for the consultant was also taken. The appointed consultant will supervise the whole process and would be responsible for preparing strategies for the merger of GICs and simplify the issues related to it. The consultant will be assisted by a committee of 20-30 high-ranked officers from all the three companies to supervise the merger process.
The consultant will also be responsible to look into the balance sheet, IT and employees of these companies. However, before kicking starting the merger of these PSU GICs, the government will have to amend the existing General Insurance Business (Nationalization) Amendment Act 2002.
A senior insurance official who attended the meeting said, "Government has given a deadline to complete the merger by March 31, 2019, as from April 1 there should be a single merged entity, and within a month tender with terms and condition for the external consultant will be notified."
The senior official said, during the merger process, companies will have to close a number of existing insurance products to avoid duplicity for which IRDA's approval is required.
The regional offices of these insurance firms will be cut down by half, i.e. there will be 45 offices instead of the current 90. Further, the database will have to be revamped as all the three firms are using different technologies. While the merger will lead to rationalisation of the offices, the challenge companies will have to address is of the excessive workforce. There are predictions that the combined entity will have to let go 5,000-7,000 employees, who would be subject to a voluntary retirement scheme.
Ideally, the merger will help reduce competition and improve profitability, productivity and efficiency at the employee level. Also, by combining manpower and databases, risk retention will be enhanced, which will improve the market to a great extent.
BIGGER UMBRELLA
- Rs 1.2-1.5 lakh crore - Initial estimates the combined non-life insurance entity could be valued post merger
- Rs 44,000 cr - Three insurers together collected a total premium in 2016-17 and their combined market share was close
- 35% - Combined market share of 3 insurers in general insurance industry
- 5,000-7,000 employees may be asked to leave post the merger
- Regional offices of the combined entity will be cut down by half to 45
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