Merger of PSU non-life insurers impractical: M Karthikeyan
26 May 2007
The head of one of the largest insurance unions, M Karthikeyan disagrees that merging the four public sector general insurers would improve their ability to compete with their new private sector rivals. In an interview with V Jagannathan, he explains why.
Chennai: At a time when two unions of the non-life insurance segment are demanding a merger of the four government owned insurers (National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited), the National Federation of General Insurance Employees (NFGIE, which is also referred to as the Federation) has been opposing the move.
The merger of the four companies has the following advantages: (a) size is important in any business and more so in the case of insurers (b) higher underwriting and risk retention capacity of a combined entity (c) increase in reinsurance premium (d) reduction in reinsurance outflow (e) healthy solvency margins (g) setting right the asset / liability mismatch and (h) reduction in costs.
Way back in 1999 domain-b.com had argued in favour of merging the operations of the four insurers. (See: Merger''s the answer for general insurance). Eight years later, the top echelons of the four companies seem to be veering towards that view.
However, the Federation''s general secretary M Karthikeyan, reacts differently, "Theoretically the argument is sound. At the practical level a merger would succeed only under a professional and with lower employee strength. The present management cannot change its attitude to cope with the challenges of a merged entity."
According to him, all four companies and their former parent General Insurance Corporation of India (GIC) lost precious time and opportunity to venture into other areas in the financial services sector, like banking and life insurance, while today virtually every major financial services group has a presence in the entire spectrum of the sector banking, life / non-life insurance, non banking financials services (NBFC).