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. This decision comes after the companies’ financial health has improved following a capital infusion of Rs 17,450 crore between 2019-20 and 2021-22. The government had initially announced plans to merge the companies in 2018, but dropped the idea in 2020 in favor of a capital infusion.
The merger is being considered to achieve better efficiency and scale, and a preliminary assessment is currently underway. Additionally, the government is also reviewing a proposal to privatize a general insurance company, as announced in the 2021-22 Budget. The General Insurance Business (Nationalisation) Amendment Act, 2021, which allows for privatization of state-owned general insurance companies, was approved by Parliament in August 2021.
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 and increase insurance penetration. A bill to this effect is expected to be introduced in the upcoming Winter session of Parliament, which begins on December 1.
The improved financial health of the three insurance companies has made them attractive for privatization or merger. The government’s decision to reconsider the merger proposal and introduce privatization is aimed at improving the efficiency and competitiveness of the insurance sector. The move is also expected to increase insurance penetration and social protection in the country.
The Finance Ministry’s decision is part of the government’s broader agenda to privatize state-owned enterprises and increase private sector participation in key sectors. The government has announced plans to privatize two public sector banks and one general insurance company, and the proposed merger or privatization of the three insurance companies is a key part of this agenda. The outcome of the proposal is expected to have significant implications for the insurance sector and the economy as a whole.