Chennai: The government has abandoned plans on merger of three State-run general insurance companies and has turned its attention towards de-merger of three major insurers, say reports.
Lawmakers might well look at strategic sales of operations of the entities to private sector, they added.
The announcement on the merger of the firms came during the Budget last year but has encountered several hurdles on its way.
The Finance Ministry had earlier proposed consolidation of operations of three major State-run general insurance companies, including National Insurance Company, United India Insurance Company and Oriental India Insurance Company to create a global scale entity. New India Assurance was left out from the mix.
The de-merger plan has now been brought to the table after a series of stakeholders meetings failed to arrive at a solution, said reports.
“The idea to merge PSU insurers is fraught with problems as one giant entity would be difficult to administer and manage. Moreover, this might lead to branch rationalisation/closure and major job losses in the sector,” the IANS reported quoting official sources.
“De-merger of big-size PSUs into smaller units, on the other hand, would enable ease in administration and further increase in reach of these to the masses with improved and more effective focus and management,” the report added.
It must be noted that earlier this year, the Department of Financial Services (DFS), which oversees the operations of State-owned insurance firms, wrote to the Department of Investment and Public Asset Management (DIPAM) not to proceed with the merger plan without solving complex operational issues.
Also, two of the three insurance majors were in poor financial health.
The move to stop merger of the three top firms might also come due to the fact that they had posted a combined loss of around Rs 1,800 crore.
The total market share of PSUs insurers fell 51 per cent in FY18, from 56 per cent five years prior to that.