Clockwise from top: Naresh Makhijani, Dinesh Chandra Khansili, Rajiv Kumar, and Premanshu Singh
The government proposes to merge National Insurance, United India Insurance and Oriental India Insurance into one company. We spoke to experts about the challenges this can raise
Naresh Makhijani, partner and head, financial services, KPMG in India
The merged entity will control about one-third of the total non-life insurance market in India…. Such a merger may result in a monopoly-like situation with low focus on customer service. It also leads to concerns about ‘too big to fail’ due to the continuous operating losses reported by these entities. India is a highly under-penetrated market. Apart from penetration, the non-life insurance industry requires huge transformation in product portfolio and operating models. Currently, crop and health insurance hardly exists; there are very few micro agents and most public non-life insurers rely on individual agents for product sales; and digital penetration is low. In light of these transformation priorities, concentration of business in the hands of only a couple of public insurance companies may limit customers’ options.
This is notwithstanding that the synergies shall bring in a lot of efficiency in operations, claims management and technology platforms. This synergy shall certainly improve the combined ratio by 5-7%.
Premanshu Singh, chief executive officer, Coverfox.com
Government has announced the merger of three big public insurance companies in India, which is likely to be completed by the end of the next fiscal. Currently, these three major players hold a combined premium book of more than Rs40,000 crore and contribute around 30% to the market of non-life-insurance. This merger will definitely reduce competition and at the same time improve the sector’s overall profitability.
This is going to facilitate improvement of solvency levels, which are currently lower than the limits prescribed by the insurance regulator for these companies on an individual basis. Underwriting discipline will also be achieved and risk retention will be enhanced.
However, the biggest challenge in this mega-merger would be technology. All the insurers are currently using different technology platforms, which will have to be brought in sync.
The current technology can be used efficiently to overcome this challenge. Other smaller issues could be the terms and conditions of employment, salaries, and others in the upcoming merged entity. Ensuring a smooth renewal and claim settlement process, keeping in mind the huge database of customers of the merged entity will also pose a challenge. They will have to strive for a complete cultural convergence.
The easiest solution would be to maintain status quo for a few years after the merged entity comes into existence.
Dinesh Chandra Khansili, executive director, Institute of Actuaries of India
Though public sector general insurers are governed by Irdai rules and most of the products are of shorter term, health insurance products can be of longer terms and there could be a long tail of claims. Products sold by insurers would be different and hence, servicing the products with varied characteristics could be a challenge for the single entity. Importantly, investment parties would be different even though Irdai investment norms apply. The infotech systems would be unique and thus a holistic integration could be a challenge. Merger of physical assets could pose a daunting challenge. The products sold by individual companies, with their terms and conditions to be honoured, could be a servicing challenge. The reinsurance system, which is visible for general insurers, could be a challenge and expectations would need to be managed in this regard. Brokers play a big role in general insurance as do third-party administrators. This too could pose a challenge eventually. The optimum use of resources, processes, and investments would actually benefit customers. The terms and conditions of a policy would be honoured and hence, existing customers would not be adversely impacted. Rather, it is expected that better efficiency in claim settlement would be achieved for longer-term products, though limited investment efficiency may be had.
Rajiv Kumar, MD and CEO, Universal Sompo General Insurance
Merger of the three public sector general insurance companies in India should be seen as strengthening the reach of non-life insurance products in an underinsured market.
Considering the competition between the three is cut-throat, the amalgamation will shift the attitude and efforts on to one singular objective, which would be to bring under its fold maximum number of uninsured people and assets. The merger is beneficial from the government’s point of view as it would reduce competition among the public sector general insurers and going forward they will be regarded as a single entity.
But subsequently, this will also create a monopolistic situation and will increase their bargaining power (for co-insurance, reinsurance) and private insurers may have to take account of this.
The merger will also lead to a challenge of addressing the excess workforce in the public sector general insurance companies.
However, things will be clearer once the road map for this merger is made public, which is likely to happen soon.
The competition will now intensify among all insurers and general insurance companies will have to turn their focus to addressing the insurance needs and servicing the uninsured markets in rural India. Given all the positive aspects of the merger, the actual benefits will only be achieved based on the agility and efficiency of implementation for the same.