Finance Minister Nirmala Sitharaman has declared that National Insurance, Oriental Insurance, United India will be merged, to create India’s biggest non-life insurance company. General Insurance Business Nationalisation Act in Budget 2019-20 will be modified for executing the same. However, as per some estimations, 10-15,000 jobs can be lost, once this merger is completed.
As per the news, the government is planning to expedite the merger of three public sector general insurance companies which are National Insurance Company, Oriental Insurance Company and United India Insurance Company. Sources said that “Earlier, the department of disinvestment had its own ideas as to how this merger of three companies has to happen to maximize the valuation potential. After examining everything over time, we have decided to go ahead with the merger plan that was announced in Budget 2018-19,”. The former member, Insurance Regulatory and Development Authority of India, KK Srinivasan said “Merger of three weak companies may not immediately create one strong company. But it will surely eliminate suicidal business competition among the three,”.
While considering the merger, the three companies have different technology and IT platforms. So platform migration and integration will be an immediate challenge that will be faced soon. Apart from this, there will also be formidable HR issues given the proliferation of trade unions in the three PSU insurance companies. Srinivasan said, “Here the role played by the chairman of SBI in the smooth merger of its associate banks with it, perhaps will serve an example worth learning from,”.
Although the plan is to create the largest general insurance company in the country with a merger of the three PSU insurance companies, it is expected that the plan is likely to make redundant 10,000-15,000 excess staff. According to the sources, this will result in savings of over Rs 3,000 crore annually. As of now, these insurers each have around 800-900 branches and around 15,000 employees and Rs 30,000 crore of assets. But it is still not clear about what they will do with the excess staff. Earlier, All India Insurance Employees’ Association had opposed the infusion of FDI into the insurance sector, and asked Govt not to privatise the sector.
According to Officials, after the merger, the cut-throat competition among state-run general insurers will come to an end and the cost of operations will also come down. All three firms in total have 90 regional offices, which will now come down to 30 post-merger, as per the reports. Also, these three companies, among themselves, have some 1,200 divisional offices (DOs) and each of them costing around Rs 5 crore annually. The official said “If the number of DOs is rationalized and some shifted to unrepresented areas and the total number reduced to around 600, the savings in cost is around Rs 3,000 crore annually. The huge savings in cost alone will turn the entity into a profitable one, provided the business momentum is maintained,”. The CMD of a public sector insurance company, who wished for anonymity said “More than physical merger, emotional integration of the companies is important to achieve the desired results. Source: https://trak.in
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