The government has made the decision to abandon the proposed merger of non-life public sector companies, as outlined in the FY19 Budget. This information was shared by the Department of Financial Services with the Parliamentary Standing Committee on Finance.
This decision holds significant importance, considering that the government had previously attributed a portion of the companies’ losses to unhealthy competition among public sector companies, resulting in undercutting and compromised top-line growth.
In its report on the performance review and regulation of the insurance sector, the standing committee on finance recommended that the government amend laws to reduce GST on health and term insurance, lower capital requirements for micro insurers, and enable the issuance of composite licenses, allowing insurers to operate in both life and non-life insurance.
During the 2018 Budget speech, former Finance Minister Arun Jaitley had announced the merger of three public sector general insurance companies – National Insurance Company, United India Insurance Company, and Oriental India Insurance Company – into a single entity that would later be listed.
However, in the following years, the government continued to infuse capital into the non-life companies. In 2021, Finance Minister Nirmala Sitharaman stated that the government would divest its stake in one public sector general insurance company but did not specify whether a consolidation would follow.
In response to the committee, the Department of Financial Services stated that the cabinet had already made the decision in 2020 not to proceed with the merger.
Interestingly, the additional secretary of the Department of Financial Services, while testifying before the parliamentary committee, mentioned that the issue with the general insurance companies lies in their portfolio composition. Approximately 50% of their portfolio consists of health insurance, 40% is motor insurance, and only 10% is allocated to other lines of business.
