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Will the merger of 3 general insurers make the new entity more competitive?

Apr 26, 2018

A quarter of a century after Independence, India began the experiment of consolidating its general insurance companies to underpin the growth of a largely government-owned, capital intensive industry. Another quarter of a century later, the process of liberalisation began as New Delhi began unshackling its state-controlled economy, integrating into the global economic order.

And nearly another quarter century later, the government has now decided to merge three of its unlisted general insurance companies to create a behemoth that it hopes would fetch it a better valuation and create a financially sound enterprise. For these companies, the oldest of which began operating in the then nerve centre of the British Empire, Calcutta, in 1906, the merger over the next two years is intended to create a sizeable government presence in the Rs 1.5-lakh-crore a year automobile, health and industrial insurance.

The proposed consolidation of National Insurance, United India and Oriental Insurance will decide the fate of 41,000 employees, 100,000 agents, 4.5 crore policyholders and 6,000 branches. Among the first casualties of a horizontal merger would be the elaborate layers of coordinating managements that have expanded over the preceding decades of independent existence for these companies.

“Three companies today have eight-nine regional offices and 200 other offices in Mumbai, which will not be required,” says Yogesh Lohiya, former chairman of GICNSE 1.11 % Re. “Around a third of the offices will have to be rationalised.”

To shore up operating performance, the three public sector insurance companies will have to reduce expenses and improve efficiency – the government will have to close down 2,000 to 3,000 branches and offices.

“The biggest challenge will be streamlining branches and manpower,” said Lohiya. “The government will have to come out with a voluntary retirement scheme to let people move out.”

But sales force and underwriting positions and claims departments may not be reduced drastically. There will be synergies in operational and maintenance departments. The technology department would shrink to have just one system.

“One-third of the branches will have to be closed down and once these branches are shut down, operational staff may see some reduction,” says Rajesh Dalmia, partner, EY.

The biggest challenge will be moving people out in the senior and mid-level management. They will have to map out the gradation system for promotions. While doing so, anomalies will surface which will lead to further delays. What does it do with 20 general managers and 45 deputy general managers in the three companies?

“This merger will take two years to happen,” said a chairman of a large public sector insurance company. “Solvency margins will not improve immediately.”

A solvency margin is the buffer that an insurance company has in assets over its liabilities. Real estate could hold key to government revenues at a valuation of nearly Rs 10,000 crore.


Solvency margins of these companies had fallen below the prescribed 1.5 times. It is the minimum prescribed surplus of assets over liabilities. National and United have raised debt to shore up their solvency requirements blurring the financial strength.

“Solvency is not going to improve on day one of the merger,” said Alpesh Shah, senior partner, The Boston Consulting Group. “There are positive synergies as the merged entity will be the number one player and will have clout with partners, e.g. OEMs and banks as well as with employees, hospitals, and all other stakeholders. But there will be a real challenge in realising the synergies, with the technology challenge involving three different systems.”

As a result of lower solvency, these companies have been writing more retail health and motor policies, which have low capital requirements and are losing out on the bigger industrial covers.

Also, these companies have substantial real estate, which are not used in calculating solvency requirement. These state-run firms are financially stronger than banks that have been hobbled by bad loans. Unlike state-run banks, the government does not need to capitalise general insurance companies every year.


General insurance companies are struggling to report profit from core underwriting business. The only exception is Bajaj Allianz General Insurance. The merger of the three leading public-sector insurance companies will create the largest general insurance company that will drive economies of scale. They will jointly command 31% market share. New India AssuranceNSE -0.67 % will become the second largest with 15.05% market share with private sector as a whole having a 54% market share.

The public sector insurance companies reported a combined underwriting loss of Rs 15,591 crore in 2016-17. Whether the merger will help in lowering losses from core operation will depend on how the merged entity goes about cutting costs. These three companies are bleeding and have low reserves. To boost reserves, the government has to invest capital.

The three companies will have to focus on lowering commission and operating expenses, which are a major part of the total expenses. so that policyholders do not suffer.”


If consolidation is to improve efficiencies, the ultimate aim of a shareholder is to monetise assets. The government, which has been struggling to make ends meet, aims to list the combined entity.

But a lot has to be done given the lack of investors’ response to the IPOs of two companies — New India Assurance and the national reinsurer GIC Re — which had to be bailed out by Life Insurance Corporation. While New India is trading 20% below the IPO price, GIC Re is down 28%.

This does not mean that there would be no takers, but the pricing and the market conditions would make a difference. It may also be all about packaging like the way newage companies in the digital and startup world do.

“It is like large internet companies that do not make money on day one but they still are getting good valuations. Future demands are more valuable than the present book,” says Dalmia of EY. “Postmerger, this entity will be the largest in the industry, commanding a premium. As the largest entity, it will have the wherewithal to manoeuver the market.”

A 15% divestment can fetch the government at least Rs 9,000 crore, an equity analyst estimates. The company may be valued at Rs 60,000 crore based on its investment book, net worth and real estate.

The merged entity will be an undisputed market leader with 1.6 times the size of New India, but to remain a meaningful and significant business entity, it has to deliver on many fronts – costs, growth and profitability.

Three GICs, National Insurance, Oriental Insurance, United India Insurance to be merged by March

Apr 26, 2018

In a meeting held on April 23, finance ministry officials asked the chairman and managing directors of the government-controlled non-life insurance companies to speed up the merger process of the three public sector general insurance companies (GICs) — National Insurance Co, Oriental Insurance Co and United India Insurance Co.

The government wants the merger to be completed by March 31, 2019. In the Union Budget on February 1, 2018, finance minister Arun Jaitley had proposed the merger of these three PSU general insurers and said the unified entity post the merger could be listed on the stock exchanges.The government had cited financial weakness as the primary reason behind its decision for the proposed merger of GICs.

The combined entity would hold 32% of the total market share, which will be nearly double of New India Assurance Co that has a total market share of 15.06%.

Initial estimates suggest that this will be the largest non-life insurance company valued at about Rs 1.2-1.5 lakh crore.

During the meeting, the decision to open tenders for the appointment of external consultant agency along with terms and conditions for the consultant was also taken.

The appointed consultant will supervise the whole process and would be responsible for preparing strategies for the merger of GICs and simplify the issues related to it.

The consultant will be assisted by a committee of 20-30 high-ranked officers from all the three companies to supervise the merger process.

The consultant will also be responsible to look into the balance sheet, IT and employees of these companies. However, before kicking starting the merger of these PSU GICs, the government will have to amend the existing General Insurance Business (Nationalization) Amendment Act 2002.

A senior insurance official who attended the meeting said, “Government has given a deadline to complete the merger by March 31, 2019, as from April 1 there should be a single merged entity, and within a month tender with terms and condition for the external consultant will be notified.”

The senior official said, during the merger process, companies will have to close a number of existing insurance products to avoid duplicity for which IRDA’s approval is required.

The regional offices of these insurance firms will be cut down by half, i.e. there will be 45 offices instead of the current 90.

Further, the database will have to be revamped.

India To Spend Rs 16,717 Crore On Modi’s Health Insurance Plan In Two Years

Apr 25, 2018

India plans to spend about Rs 16,717 crore in the first two years on the free health insurance programme that offers cover for 10 crore poor families.

“The centre’s share will be Rs 10,498 crore and the states will spend around Rs 6,219 crore,” Alok Saxena, joint secretary in the Ministry of Health and Family Welfare who has been supervising the rollout, told BloombergQuint in a written reply. In the first year, the government will spend Rs 2,800 crore and states’ will pitch in Rs 1,700 crore. They will contribute Rs 7,300 crore and Rs 4,500 crore, respectively, in the second, he said.

Prime Minister Narendra Modi’s National Health Protection Scheme aims to cushion the poor from healthcare costs as insurance penetration is low at 3.49 percent in India against 6.28 percent globally. About 62 percent of the medical expenses are paid out of pocket by Indians, according to World Bank data. That, according to government’s think-tank NITI Aayog, pushes nearly 70 million people into poverty each year in a country that spends 1.4 percent of its GDP on healthcare—the lowest among BRICS peers and also below the global average of 5.9 percent.

About 43.8 crore people were covered under various health insurance schemes in the country as of March 2017, according to a report by global ratings agency Crisil. That included 33.5 crore under various government-sponsored schemes including the Rashtriya Swasthya Bima Yojana. “With the new scheme, the coverage will increase to more than 65 crore people.”

The plan offers an insurance of Rs 5 lakh for every family, and covers over 1,200 procedures, including all secondary and most tertiary ailments such as diabetes, all types of cancer and heart diseases. Saxena said states will be given the autonomy to reserve certain complex procedures, such as obstetrics and gynaecology, to public hospitals.

In addition to the overall allocation, the government approved a spend of Rs 350 crore for setting up a national-level institution to set up and run the Ayushman Bharat National Health Protection Mission. The institute will be responsible for creating awareness, developing IT systems and managing administrative costs, he said.

Optional For Private Hospitals

The plan, which intends to provide free healthcare to over 50 crore people living below the poverty line, will mostly be run by government hospitals that will be part of the scheme from day one.

Private hospitals can choose to join by registering online. “Once private hospitals empanel themselves, they will have to provide treatment at our rates,” said Saxena.

The IT platform to implement the insurance scheme will be ready and tested by July. “Everything else is ready and the launch date will be decided by the government anywhere between August and October.”

States will have the option to run the scheme either via insurance companies or on a trust-based model. “The premium rates, however, will only be discovered once we begin the tender process for insurance companies in May,” said Saxena. The states can implement the scheme in this year or the next depending on their preparedness and contractual obligations towards their existing health insurance programmes, he said.

“There will be different cost structures for different states, therefore the premium outgo per family for each state will also vary accordingly,” said Sanjay Datta, chief, underwriting & claims, at India’s largest private general insurer ICICI Lombard General Insurance Company.

Apart from the rising medical costs, said Sandeep Patel, managing director and chief executive officer of Cigna TTK Health Insurance, other factors such as age, gender, zone of cover, add-on benefits and health status of individuals will impact premium rate quotations.

What Happens To State Schemes?

States like Andhra Pradesh, Telangana, Karnataka, Gujarat, Tamil Nadu, Maharashtra, Kerala, Meghalaya, Chhattisgarh, Goa, Dadra and Nagar Haveli, Arunachal Pradesh and Puducherry already have similar health insurance covers.

States will continue with their plans as before, except for the families below the poverty line identified under the socio-economic and caste census of 2011, according to Saxena. Those will now be covered under the nationwide plan.

“Integration is not the way to do it. State and national schemes will work in partnership with each other,” said Saxena. States can take a call on whether they want to continue with their cover of Rs 1.5-2 lakh or increase it for the families not to be covered under the national insurance plan, he said.

Digital Disruption in Insurance: Stock market discipline can drive innovation

April 05, 2018

It was a milestone year (2017) for India’s insurance sector, as insurers continued to ride the wave of investor demand for insurance IPOs. India’s century-old insurance market, which had been relatively staid in terms of innovation for decades, is transforming to improve solvency standards and deliver new competitiveness and efficiencies. As the government seeks to liberalise the sector, improve efficiencies at state-owned insurance companies and grow the pool of insurance capital eligible for investment in other Indian assets, investors have been responding positively to the opportunities in the sector. Recent IPOs in domestic insurance closed multiple times oversubscribed, with pricing coming in at the top of pricing ranges, although stock market performance since listing has been mixed. The focus on growing the insurance sector is attracting interest of foreign investors. Following the government’s move to raise FDI ceiling in the sector in March 2016 to 49% through the automatic approval route, up from 26%, FDI inflows in the services sector (which includes banking, insurance and other financial services) accounted for the second largest share of FDI inflows to India in the July-September quarter of 2017 at $2.9 billion. This accounted for 19.2% of total FDI inflows over the period. The attractiveness of the insurance sector to investors has been driven in part by the potential for deeper market penetration and better performance as India has historically had relatively low penetration rates for insurance.

According to a report by Moody’s, in the fiscal year ended March 31, 2017, the Indian combined insurance industry’s total gross premiums grew by 17%, bringing the five-year CAGR to10% for the sector. Non-life premiums grew 32% in FY17 versus 13% for life insurance. India’s economic progress, too, is a driver of insurance demand and innovation. A burgeoning middle class is seeking to better manage risk and maximise investment returns as India’s economy makes strong strides. A thriving insurance sector benefits from and contributes to overall economic development. As India’s insurers get exposed to greater public scrutiny, the rigours of analyst assessment, and diligence and transparency required of public companies in reporting and managing businesses, shareholders will want to see these companies adopting the right technology systems and operating models to drive capital growth and yields. To deliver on this expectation, listed insurers will need to apply even greater rigour in the identification and selection of their technology partners, ensuring that technology at once drives stronger capabilities and lower costs. Consolidation of vendors, systems and processes will be necessary to ensure insurance companies are doing more and better with less.

They must work to achieve better performance while ensuring minimal disruption to services and maximum cost efficiencies. This will require optimisation of the time and resources insurers deploy to make informed investment decisions that drive growth for shareholders and returns for clients. It needs adoption of technology that can speed data capture and analysis and ultimately digitalisation of systems, processes, services and client interface. Firms that capture these opportunities for growth and competitiveness will be the ones that create the best potential to thrive as they invest in robust, scalable technology systems that can support long-term business growth, reduce costs, centralise compliance and oversight, and bolster operational efficiency. Those which fail to harness technology as a strategic asset risk being leapfrogged by more agile and innovative competitors, a trend seen globally in the insurance sector where better ways of tailoring, delivering and managing products for clients’ needs are causing traditional players to innovate to ward off new and nimble, technology-based competitors in the sector.

Source: Financial Express

7 reasons to buy insurance online

April 05, 2018

The trend of buying insurance policies online is slowly and steadily growing in India. Gone are the days when you had to visit the insurer's office, or fix an appointment with an insurance agent or a broker to buy a policy.

Today, the entire spectrum of insurance products, be it health, motor, travel, or life, all available to you on the internet.

The Internet has made the life of a common man easy. Whether it is talking to our loved ones, shopping, booking movie or concert tickets, opening a bank account, or buying vegetables, every chore that once required us to step out of our house is now one click away and we have been using these services with ease.

Despite this, insurance is one such market that is still left untouched. With a lot of people trying to revolutionize this space, insurance companies are themselves allowing users to buy their policies online and also provide detailed information on coverage and relevant quotes. Also, the security in banking and finance sector is drastically changing, thus giving people a sense of security with their confidential data.

From easy access and no documentation to lesser premiums with higher sum insured, there are way too many benefits of buying an insurance online. Let’s have a look at a few of them.

You are the decision-maker

The digital world is full of information and this allows you more flexibility and options in choosing your required plan. However, you need to conduct research on your own while buying a policy online. There is no advisory involved and you can reach through the clause and select a plan that suits you the best.


When you buy an insurance policy online, you save precious time that would have been otherwise wasted at every step of the manual process. Thanks to the internet, you can now browse, compare, apply, and pay anytime, from anywhere and have your policy in your mailbox within a few seconds.

Ease of comparison

Online aggregator companies help insurance buyers to compare plans from different companies. This way, you can make an informed decision and buy a plan that fulfills your requirements. Online comparisons include policy benefits, features, exclusions, inclusions, premium etc.

Zero paperwork

Most insurance company websites are easy to understand and engaging. Once you finalize a policy, you need to fill a detailed form, complete your KYC, answer some lifestyle-related questions, and pay to buy the policy. There is no need to create photocopies, seek certificates, or courier documents. It is a hassle-free, no-paperwork process.

24*7 customer support

Buying insurance online has become easier in the past few years as online teams now help you make the right choice. From suggesting suitable options to sending timely reminders for premium payments, there are various benefits of buying insurance on the internet. If you are confused about the plan that is best tailored for you, these online companies provide round-the-clock assistance with the help of live chats and video call options on their website.

In addition to this, the automated system also sends out reminders about renewal dates, thus making sure that the complete process is totally stress-free.

Moreover, customer support teams are responsible to make the claim settlement process smooth and fast.

Online reviews

Before you buy an insurance policy online, you can always read reviews, seek opinions, get suggestions, and consider various unbiased perspectives about the plan and the insurance company you are planning to buy from. You can also know their claim settlement record for your information.

Complete transparency

As each and everything about the product in question, from its features to the customer experience as well as the regulatory action that is applicable in case there is a problem at your end, is online, there is nothing that an insurer can keep from you anymore. Therefore, there is total transparency in the entire process.

The move to digital is unavoidable, and people are trying to revolutionize the insurance industry with the help of Artificial Intelligence (AI) and chatbots. Online insurance is one such boon which will make our life hassle-free. In the near future, insurance will be bought and not sold!


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