Govt Once Again Explores Merger of Public Insurers, But No Timeline for Now

The government is once again exploring the idea of merging public sector insurance companies, National Insurance Company, Oriental Insurance Company, and United India Insurance Company, but no formal plan or timeline has been set.

The idea first gained attention in 2018-19 as the government looked at ways to make public insurers more sustainable. These companies have faced consistent financial losses and have needed repeated government funding to meet regulatory requirements.

Since then, the proposal has been discussed several times within the Department of Financial Services and with regulators, insurers, and policy advisors. However, it has never moved beyond preliminary discussions. Key questions, such as how much capital would be needed and whether a merger would solve the companies’ financial problems, remain unanswered, Moneycontrol reported citing sources.

The merger is part of a larger government effort to strengthen public sector financial institutions, following earlier bank mergers. But officials are reportedly unsure if the same benefits would apply to insurers. Disagreements over company valuations, merger structure, and how to handle past losses have slowed progress.

Capital is a big worry for the merger plan. Over the past few years, all three insurers have relied on government funding to meet the financial rules set by the Insurance Regulatory and Development Authority of India (IRDAI).

Even with these injections, a combined company could still need more money if all past losses and risky policies are added together.

Some officials reportedly think future funding should be tied to improvements in how the companies operate, like better claims handling or more disciplined underwriting. Others argue that each company should fix its financial problems on its own first, though that would push any merger further into the future.

Inside the government, two approaches are being discussed. One is to give money only when the merged insurer hits specific operational goals, like improving profitability and efficiency. The other is to address the financial weaknesses of each company before thinking about a merger, even if that delays consolidation by years, the report further said.

There are also operational challenges. The three insurers have overlapping branches, outdated IT systems, and large workforces with different service rules. Integrating these would require careful planning and support from employee unions.

Until the government resolves questions around valuation, benefit-sharing, and post-merger capital planning, a merger remains only an idea, Moneycontrol added.