Merger''s the answer for general insurance

Venkatachari Jagannathan
10 September 1999

"The set-up adopted by government at the time of nationalisation of general insurance business was that of a holding company and four subsidiaries. However, the expectation that the subsidiary companies would provide effective competition to each other has been largely belied ..." - Malhotra Committee on insurance sector reforms

Even as the issue of restructuring the Rs.9,000-crore premium income, general insurance sector is pending serious consideration the General Insurance Corporation has sprung a surprise by its recent decision to float two new subsidiaries -- one to manage health insurance (group healthcare schemes, to start with) and the other to transact crop insurance.

As per Malhotra Committee's recommendations, the new managed health care company will have an equity base of Rs.100 crore and will start operations once a new government at the Centre gives its stamp of approval. The new company would also devise health insurance products to be marketed by the existing four underwriters! As far as the proposed crop insurance subsidiary is considered, GIC will spin off the crop insurance cells of its four subsidiaries into a separate company.

While the move to float a separate company to manage crop insurance has been recommended by the Malhotra Committee, floating a separate company to transact health care schemes has come as a surprise to many when the demand is to restructure the present set-up before the industry is opened up.

Change is imminent
For the uninitiated, the National Insurance Company Ltd, New India Assurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd are the four insurers who underwrite risks other than life and, apart from governing them, their holding company GIC restricts itself to accepting aviation risks.

After several years of debate a consensus has been reached amongst the political parties, barring the leftists, on liberalising the sector. The recent government move to allow registration of insurance companies by the registrar of companies is proof of current political thinking on this subject.