Public sector insurers lose market share to merger plan delay: Irdai data

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Public sector general insurance firms are losing market share because of delayed merger plans and appointments. According to the latest data from the Insurance Regulatory and Development Authority of India (Irdai), four public sector general insurance companies had a market share of 44.64 per cent as of June 2018, compared to 49.65 per cent a year ago.

ICICI Lombard has cornered 10.1 per cent of the market share in terms of gross direct premium underwritten up to June, making it the second-largest insurer in the non-life space after New India Assurance. At the end of June last year, ICICI Lombard had a market share of 9.97 per cent, and was in the second position in terms of market share.

Till May this year, United India Insurance had the second-largest market share at 10.13 per cent. However, in June, its market share fell to 9.67 per cent, dragging it to the third slot.

The merger, proposed by Union minister Arun Jaitley in his last Budget speech, of three companies — National, United India and Oriental Insurance — was expected to create a public sector insurance behemoth, cornering a third of the market share.

However, the merger plan has been delayed, as the companies are yet to appoint a consultant for the process, said sources. The merger was expected to be completed by April 2019, but now it has been pushed to the next financial year, which coincides with the general elections.  

Apart from market share, solvency ratio and profitability of the government companies remain a concern.

The solvency ratios of the three general insurance companies are much weak compared to their counterparts in the private sector and this barely meets the regulatory requirement. For example, National Insurance’s solvency ratio stood at 1.26 at the end of March 2016, which was below the mandatory level of 1.5. The ratio improved to 1.9 at the end of March 2017, but again fell to 1.55 at the end of March 2018. United India’s solvency ratio stood at 1.54 at the end of March 2018, which was 1.15 at the end of last financial year and 1.91 at the end of FY16. Oriental Insurance’s solvency ratio was 1.67 at the end of FY18, against 1.11 at the end of FY17. For most private sector companies, solvency ratio is above 2 per cent.

In terms of profitability, all the public sector general insurance firms have registered underwriting losses, but baring National Insurance, all of them remained profitable on account of investment income. National Insurance incurred a net loss of Rs 21.7 billion last financial year, which, according to a senior official of the company, was on account of wiping out all liabilities. National Insurance’s underwriting loss was the highest in the industry at about Rs 55.83 billion.

“While the day-to-day functioning of the companies is not hampered without a regular head, having a CMD is important, as it is the head who decides on the long term vision of the company. More than the market share, solvency ratio and profitability are bigger issues for the public sector firms,” according to a senior official from the public sector general insurance sector.

K Sanath Kumar retired from the position of CMD of National Insurance in April, while M N Sarma, from the position of CMD of United India Insurance in May end, and G Srinivasan, from the position of CMD of New India Assurance in July-end.

As an interim measure to run the three companies without a regular head, the government vested two general managers in each of them, who are also whole time directors of the companies, with authorisation powers and responsibility to manage the companies. However, the authorisation came with a delay of about a month for both National Insurance and United India Insurance.

“In absence of a CMD, initially there were some problems, especially in decision making. We got formal authorization in June and hence all the processes are in place now,” according to a senior official of a public sector general insurance firm.

According to sources, interviews for the post of CMDs were held in May after shortlisting of about nine candidates, and the appointment is awaiting PMO approval.

Meanwhile, private sector companies, although most of them, too, suffer from underwriting losses, they have increased efficiencies and reduced claim turnaround time.

“Portfolios which are growing include health, group health and motor among others. We have included a lot of automation and turnaround time for claim processing has been significantly reduced,” according to Sanjay Datta, chief, underwriting and claims, ICICI Lombard.

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