The PSU general insurance companies were created in the 1970s to provide a modicum of competition in the government monopoly environment. But With liberalisation and opening up of the market to private players as well as unhealthy competition among the four companies has resulted in them rapidly going down in terms of profitability and solvency.
So the merger of three public sector co’s was announced in the budget 2018-19 but things kept moving at snail’s pace due to weighing of various options by department of dis-investment. But now with continuous decline of premium income of the companies & mounting underwriting losses, the Govt. has gone serious about the merger & trying to expedite the process.
Even the employee unions in the public sector general insurance companies have demanded merger of state-owned general insurers. The government is unlikely to face any opposition from the unions for merger.
Earlier the three companies had appointed EY as a consultant for the merger & With continuity in the elected government ensured, action on the merger of the three public sector undertaking (PSU) general insurance companies has gathered momentum now.
As of now, all three companies put together have about 90 regional offices, which may now come down to 30 post merger. The three companies, among themselves, also have some 1,200 divisional offices (DOs) with each DO costing around Rs 5 crore annually.
If the number of DO’s is rationalised and some shifted to unrepresented areas and the total number reduced to around 600, the savings in cost is around Rs 3,000 crore annually. All three companies are also running around 900/1000 each all over India & rationalization of about 3000 branch offices will also be carried out.
At present the companies having employee strength of around 40000 &
The plan is likely to make redundant 10,000-15,000 excess staff and result in savings of over Rs 3,000 crore annually, said the sources. The employees are expected to be offered a suitable scheme for VRS to make the transition smooth.
The huge savings in cost alone will turn the entity into a profitable one.
The only major issue is that the three companies have different technology and IT platforms. Platform migration and integration is an immediate challenge & is to be sorted out on priority basis.
Prevailing uncertainty, & delay over the merger issue is hearting the public sector insurers in a big way. The June-April quarter premium data show that pvt sector insurers like SBI, TATA & Reliance has growth rate of 26%, 27% & 35% whereas the oriental insurance, United India & national insurance have grown by 5%, 2% & Minus -12%. The Govt. is aware that any further delay will not augur well for the health of these companies.