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 government had previously infused Rs 17,450 crore into these companies between 2019-20 and 2021-22 to improve their financial health. The idea of merging the companies was first announced in the 2018-19 Budget by then Finance Minister Arun Jaitley, but was dropped in 2020 in favor of a capital infusion of Rs 12,450 crore.
However, with the companies’ finances now improved, the ministry is reassessing the merger proposal to achieve better efficiency and scale. Additionally, the government is also exploring the possibility of privatizing one of the general insurance companies, 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.
The proposal to merge the three general insurance companies and the plan to privatize one of them are part of the government’s efforts to improve the efficiency and competitiveness of the insurance sector. The government has lined up a bill to increase the FDI limit in the insurance sector, which is expected to be introduced in the upcoming Winter session of Parliament, scheduled to begin on December 1. The session will have 15 working days, and the government is expected to push through several key legislative proposals, including the insurance sector reform bill.