Take the bank merger cue for insurance

Feb 1 is around the bend. Approaching the Union budget, GoI is reportedly set to review the operational and financial performance of state-owned general insurers. Unlike other reviews that could give hope of revenues for the government, this one would, in all probability, demand capital from it. Performance of three of the four government-owned general insurers - Oriental Insurance, National Insurance and United India Insurance - hasn't been satisfactory for a long time. The factors behind this are many, including poor underwriting practices, and stiff competition that is eroding profitability. Underwriting losses for the state-run companies was at ₹18,862 cr last year. It's unsustainable in the long run.

PSU general insurers have also been surviving on income from historical investments, especially equities, some of which have provided unbelievable returns because of the timing and rally in the stock market. It can't last long. GoI proposing 100% FDI in insurance is set to draw stronger companies, which could very well start on a clean slate. That's trouble for the existing ones, especially those that are faltering. The government has invested ₹17,450 cr in the past four years, and that's not enough. So, how does one fix things?

This administration has created a playbook in the banking sector: merger. It combined many of the banks in a massive merger that brought in efficiencies and helped them raise capital from public markets. It need not be different for general insurers. The four could be halved through amalgamation and can be listed, as GoI did with Life Insurance Corp. That should help them find their feet in a competitive market. And relieve the state of funding inefficient businesses for eternity.