The Indian Finance Ministry is reconsidering the merger of three state-owned general insurance companies: Oriental Insurance, National Insurance, and United India Insurance. This proposal was initially announced in the 2018-19 Budget to improve efficiency and scale by consolidating the three entities into a single insurer. However, the plan was dropped in July 2020, and instead, the government infused Rs 17,450 crore between 2019-20 and 2021-22 to revive the companies, which were facing financial distress.
With the improvement in the financial condition of these companies, a fresh preliminary assessment on consolidation is underway. The government had earlier approved a capital infusion of Rs 12,450 crore into the insurers. The sources suggest that various options are being considered, but nothing has been finalized yet.
In addition to the merger, the government is also assessing the proposal to privatize a general insurance company, which was announced in the 2021-22 Budget. The General Insurance Business (Nationalisation) Amendment Act, passed in 2021, removed the requirement for the Centre to hold at least 51% equity in a specified insurer, allowing for greater private participation to enhance insurance penetration and social protection.
To attract more global players and expand insurance access, the government plans to introduce a Bill in the upcoming Winter session of Parliament to raise the Foreign Direct Investment (FDI) cap in the insurance sector to 100% from the existing 74%. The Winter session, scheduled to run from December 1 to December 19, will have 15 sittings, and the government is expected to introduce the Bill during this session.
The proposed changes aim to improve the efficiency and scalability of the insurance sector, increase private participation, and enhance insurance penetration in the country. The government’s efforts to reform the insurance sector are expected to have a significant impact on the industry and the economy as a whole. With the improvement in the financial condition of the state-owned insurance companies, the government is now in a position to consider consolidation and privatization, which could lead to increased competition and better services for policyholders.