The Indian government is set to restart the process of privatizing a state-run general insurer in the next financial year. This decision comes after the Parliament passed a bill to increase the foreign direct investment (FDI) limit in the insurance sector to 100%. The government is expecting more players to show interest in the privatization process, which could lead to better valuations. The privatization process is part of the government’s plan to reduce its stake in state-owned general insurers to below 51%, as announced by Finance Minister Nirmala Sitharaman in her 2021-22 budget speech.
There are four public sector general insurers in India, but only one, New India Assurance, is profitable. The other three, National Insurance, United India Insurance, and Oriental Insurance, are loss-making, despite showing some improvement. The government will conduct a performance review of these companies after the December quarter results, which will help determine the next course of action.
The privatization process is expected to be influenced by the financial health of the chosen company. Private sector interest may be higher for companies with better financials. For example, Oriental Insurance has significant losses of around ₹8,293 crore on its balance sheet, while United India Insurance has reported a turnaround in 2024-25, posting a net profit of ₹154 crore. National Insurance, on the other hand, reported a loss of ₹284 crore for the September quarter.
The Insurance Regulatory and Development Authority of India (IRDAI) requires all insurance companies to maintain a surplus of 1.5 times their liabilities at all times. The solvency margin, which is the minimum margin of assets required by an insurer in excess of its liabilities, is a key indicator of an insurer’s financial health. The government may need to infuse capital into the loss-making insurers to make them more attractive to private investors.
The government’s decision to increase the FDI limit in the insurance sector to 100% is expected to attract more foreign investment and improve the competitiveness of the sector. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, which was passed by Parliament, also gives more power to the IRDAI to regulate the insurance sector. Overall, the government’s plan to privatize a state-run general insurer is expected to lead to more efficient and competitive insurance services in the country.