Merger of the four would lead to optimum utilisation of a large workforce of public sector companies and their integration with digital capabilities to penetrate into rural areas.
Illustration: Uttam Ghosh/Rediff.com
Even as various merger options of the four public sector general insurance companies - National Insurance, Oriental Insurance, United India Insurance and New India Assurance - are being vetted by the government, a majority of employees in these firms are in favour of a merger into a single monolith.
Last financial year, for the first time, the share of these public sector companies fell below their private peers.
Both officers and employee unions of these companies are of the opinion that merger of the four companies will do away with mutual competition and help them reclaim the dominant market share as a whole.
The share of all public sector general insurance companies (including Agriculture Insurance Company and Export Guarantee Corporation of India), stood at 45.35 per cent, while that of private companies stood at 54.65 per cent in FY19, according to data from Insurance Regulatory and Development Authority of India (Irdai).
According to a senior official in one of the public sector companies, the government has been vetting various merger options - including initial merger of three companies (United India Insurance, Oriental Insurance and National Insurance), followed by a takeover by New India Assurance. Earlier, some of the other options discussed include creating of two public sector general insurance companies, said a source.
While public sector companies had been struggling with understaffed offices and capital constrains, private sector companies in the last two years could gain a sizeable market share through schemes like Prime Minister Fasal Bima Yojna and Ayushman, the flagship crop insurance and health insurance schemes of the government respectively, involving private participation.
“The merger of all the companies would be a better idea than merger of three, as it will become a strong entity and after capital infusion, will be able to underwrite big businesses,” said president, AE Shantakumar, United India Insurance Officers Union.
However, according to K Govindan, general secretary of the General Insurance Employees’ All India Association, the employees’ union (non-officers’) is not in favour of merger through a takeover, that is, merger of United India Insurance, National Insurance and Oriental Insurance and a subsequent takeover by New India Assurance - the strongest among the four.
“We have been advocating the merger of all the four companies at one go.
"A take over would mean unequal terms of employment,” said Govindan.
From the point of view of shareholders’ also, merger of the four companies makes a better deal.
“From the company’s point of view, it makes sense to merge the three (National Insurance, Oriental Insurance and United India) but from the shareholder’s point of view, it makes more sense to merge all the four.
"There are questions as to whether this will make a healthy company as they have (the three companies) been struggling with their financials.
"And, it is going to be tough to create a healthy organisation and maximise shareholder profit by merging the three,” said Ashvin Parekh, managing director of Ashvin Parekh Asdvisory Service.
According to a top official of a public sector general insurance firm, merger of the four would lead to optimum utilisation of a large workforce of public sector companies and their integration with digital capabilities to penetrate into rural areas.
In keeping with the merger plans, the government had earlier instructed the companies to restructure their business, clean up balance sheets and optimally utilise the workforce, said the official.
At present, the four general insurance companies have a workforce of around 70,000.
The financial condition of the three public sector companies - United India Insurance, National Insurance and Oriental Insurance is also worrisome.
Last year, in their presentation to the finance ministry, the three companies had stated a collective recapitalisation need of between Rs 9,000 crore and Rs 15,000 crore, with each requiring about Rs 3,000- Rs 5,000 crore.
Of the three companies, the solvency ratio of two companies - Oriental and National Insurance - slipped below the regulatory requirement of 1.50 in Q3, states the the latest available data.
There has been no recruitment in the public sector general insurance companies since a year.
According to rough estimates, in the officers’ grade in the PSU general insurance firms, close to 600-900 posts are lying vacant since one year.
At the clerical and subordinate level, the staff shortage is around 12,000, said sources in the companies.
Moreover, in the next two to three years, about 25 per cent of the work force, especially in the clerical level, is expected to retire.