The Indian Finance Ministry is reconsidering a proposal to merge three state-owned general insurance companies – Oriental Insurance, National Insurance, and United India Insurance – into a single entity. The proposal was initially announced in the 2018-19 budget by then Finance Minister Arun Jaitley, but was later dropped in 2020 in favor of a capital infusion of Rs 12,450 crore to improve their financial health. However, with the companies’ finances now improved, the ministry is reassessing the merger proposal to achieve better efficiency and scale.
The government had infused a total of Rs 17,450 crore into the three companies between 2019-20 and 2021-22 to bring them out of financial distress. The improved financial health of the companies has prompted the ministry to consider the merger proposal once again. The proposal is still in the preliminary stages, and various options are being examined.
In addition to the merger proposal, the government is also considering the privatization of a general insurance company, as announced by Finance Minister Nirmala Sitharaman in the 2021-22 budget. The General Insurance Business (Nationalisation) Amendment Act, 2021, which allows for the privatization of state-owned general insurance companies, was approved by Parliament in August 2021. The amended legislation removes the requirement for the central government to hold at least 51% of the equity capital in a specified insurer, paving the way for greater private participation in public sector insurance companies.
The government is also planning to increase the foreign direct investment (FDI) limit in the insurance sector from 74% to 100% to facilitate the entry of new players from overseas and increase insurance penetration. A bill to this effect is expected to be introduced in the upcoming Winter session of Parliament, which is scheduled to begin on December 1 and continue till December 19. The session will have 15 working days, and the government is expected to push through several key legislative proposals, including the insurance sector reforms.