The Indian government is preparing for a significant overhaul of three major public sector insurance companies. These include New India Assurance, Oriental Insurance, and United India Insurance. Aiming to rejuvenate these companies, the government is reviewing their capital needs and considering multiple possibilities, including a potential merger. This move could reshape the insurance sector, following previous major reforms in defence, railways, and energy sectors.
Government’s Rejuvenation Plan for Insurance Companies
The central government recently conducted a detailed review of the capital requirements of these public sector insurers. A big change is on the horizon, but instead of directly infusing capital into these companies, the government is looking at other ways to revive them. One of the most talked-about possibilities is the merger of the three insurers into one larger entity. This would not be the first time the government has considered such a move, as a similar proposal was made in 2018. However, the plan didn’t go through back then due to a lack of Cabinet approval.
This time around, the government seems determined to move forward with the merger idea, which could potentially create a stronger, more competitive company in the insurance market.
Capital Requirements and Regulatory Pressure
According to a report by Moneycontrol, the government is planning to inject fresh capital into these companies, but in proportion to their profits. This comes after the government previously infused Rs 17,500 crore into non-life insurance companies between 2020 and 2022. Despite this, the companies still need a significant amount of capital to meet the requirements set by IRDAI (Insurance Regulatory and Development Authority of India), especially regarding solvency conditions.
Reports suggest that these companies collectively need around Rs 25,000 crore to meet these regulatory standards. A 2023 report from ICRA indicated that except for New India Assurance, the other two insurers will require Rs 9,500 to 10,000 crore by March 2025 to fulfill solvency norms.
Market Challenges and Declining Share
Another challenge these companies face is their shrinking market share. The public sector insurers are losing ground to private players, and their market share dropped to 31.18% in FY 2024, compared to 32.27% the previous year. National Insurance Company, for instance, reported a net loss of Rs 293 crore in the June 2024 quarter, while New India Assurance remained profitable.
With declining profits and market share, the government’s restructuring plan aims to strengthen these companies and make them more competitive.
