The Indian government's proposal to merge three state-owned general insurers can trigger a whole bunch of initiatives, yielding positive returns for all the key stakeholders-industry, shareholders and customers, says Rohit Jain, head of India for Willis Towers Watson.
In an article, he says that the merger of National Insurance, United India Insurance and Oriental India Insurance can have massive consequences as the merged entity will end up controlling about one-third of the total non-life insurance market in India.
With the merger, one can expect an end to unhealthy competition among the companies and a more sensible underwriting discipline. This merger presents an opportunity for the companies to transform into a new-age entity in today’s fast paced and dynamic insurance market by discarding some of the legacy operating protocols, which have become bureaucratic over a period of time, and reinventing organisational structures.
A merger of this size and stature will provide cost synergies primarily around infrastructure, operational efficiencies fuelled by economies of scale and optimisation around marketing spend. The “InsurTech” space hands a golden opportunity to the merged entity to strongly embrace technology and leverage it as a differentiator while competing with private sector insurers.
Apart from improving customer experience, the merged entity can enhance customer reachability and expand across under-penetrated geographies. With a huge talent pool and wealth of experience in a unique and intricate Indian market, innovative “productisation” can be expected from the stables of the combined entity. Until now, the focus has been restricted to traditional products itself.
With the emergence of newer risks in the Indian ecosystem, the new entity can leverage its strength to provide solid risk mitigation and risk transfer capabilities. Some of the speciality risks such as cyber, title, warranties and others still call for more product focus around understanding the risk, communicating it and eventually underwriting the risk.
In addition to accomplishing its goal of deeper insurance penetration in areas such as health, personal accident and crop, the government may also be looking at this new vehicle to reduce forex spending as a result of better retention capacity of the combined entity.
Harmonising the different IT platforms into a common one will be a mammoth task. But given that India is home to some of the best tech companies in the world, it can pose only a temporary challenge.
In terms of organisational culture, the integration of people and processes would certainly be onerous. There are more than 50,000 employees spanning the three entities and redundancies can be expected. The government would need to tread cautiously and may have to pursue reskilling/upskilling aggressively.
Various issues related to the retirement liabilities (integration of gratuity, super annulation, provident fund) of employees will also pose a huge challenge, requiring attention of qualified and experienced actuaries.
Managing treasury investments will also be tricky due to the regulatory and governance framework that defines the extent of investments in any investee company. Also, an entity of such mass and volume can sow the seeds of monopolistic market behaviour. The regulator will have to allay such fear of threat towards customer sovereignty.
Jain says that apart from the prospect of improved valuation and safeguarding investor interest, what probably motivated the government to announce this merger was a combination of the deteriorating financial condition of the three companies, concerns around raising capital from the market and the divestment agenda of the government.