The CMDs have already held one round of meetings at the prodding of the department of financial services. “The exercise will also tell us more accurately how much of their money is locked up as provisioning for these cases,” said a government official, aware of the developments. This will determine how much money the government may need to provide the merged entity to bring its solvency ratio in line with the yardsticks of the insurance regulator, the Insurance Regulatory and Development Authority of India (Irdai).
Rajiv Kumar recently said the merger would happen next year. The finance ministry had provided the Rs 2,500 crore through the first supplementary demands for grants for 2019-20, which has been cleared by the Cabinet now. This is the first time ever when the government has had to put money into the insurance companies as their owner. Going ahead while each company has put up a large bill towards merger, the ministry feels the additional support needed would be reasonable. It will depend on improving what is called the solvency ratio, a measure of the balance between assets and liabilities of the companies.
The biggest drain on the solvency ratio of these companies comes from the claims from the third-party motor insurance business. According to Irdai data, the total third-party premium booked by these three companies in 2018-19 was Rs 11,860.58 crore. Since no insurance companies share data on their claims with each other, the finance ministry and Irdai suspect that a lot of the resultant claims are duplicates. The claims ratio — claims paid over net earned premium for the three companies — is 108.54 per cent compared with 74 for the private sector companies (2018-19). The number for the state-owned companies has deteriorated over the past few years with United India at one stage having stopped taking out fresh group medical insurance business.
To bring clarity in the claims business, beginning with the motor portfolio, which is usually the second-largest business of these companies, the government has also decided to involve the insurance Ombudsman in each region. There are 17 such Ombudsmen spread across India. They are expected to know the details of the complicated cases and the extent of losses that might need to be paid up by these three companies. This itself is a surprise for the sector where the Ombudsman scheme has languished because of lack of response by the insurance companies, government run or privately held.
The bringing together of the claims department of each firm would also help to improve the public perception of these companies which might otherwise face dwindling business, rapidly. Unlike life insurance, non-life policies are written for just a year, though the Supreme Court has last year ordered that third party motor insurance companies to be issued for three years.