Merger of state-owned insurers to shake up management layers

Among the first casualties of a horizontal merger of three state-owned general insurers would be the elaborate layers of coordinating management.

The proposed consolidation of National Insurance, United India and Oriental Insurance will decide the fate of 41,000 employees, 100,000 agents, 45 miliion policyholders and 6,000 branches.

To shore up operating performance, the three public sector insurance companies will have to reduce expenses and improve efficiency – the government will have to close down 2,000 to 3,000 branches and offices, reports The Economic Times.

The three public sector insurance companies reported a combined underwriting loss of INR155.91 billion (US$2.33 billion) for the financial year ended 31 March 2017. Whether their merger will help in lowering losses from core operation will depend on how the merged entity goes about cutting costs. The three companies will have to focus on lowering commissions and operating expenses, which are a major part of the total expenses.

Mr Yogesh Lohiya, former chairman of GIC Re, said, “The biggest challenge will be streamlining branches and manpower.

“The government will have to come out with a voluntary retirement scheme to let people move out.”

But sales force and underwriting positions and claims departments may not be reduced drastically. There will be synergies in operational and maintenance departments. The technology department would shrink to have just one system.

Mr Rajesh Dalmia, partner at the professional services firm EY, said, “One third of the branches will have to be closed down and once these branches are shut down, operational staff may see some reduction.”

The biggest challenge will be cutting down staff in senior and mid level management. There are reportedly 20 general managers and 45 deputy general managers in the three companies. The gradation system for promotions will have to be worked out. While doing so, anomalies will surface which will lead to further delays.

The merger of the three insurers will create the largest general insurance company in India that will drive economies of scale. The merged entity will jointly command 31% market share.

The Finance Ministry has asked that the insurers be merged by 31 March 2019.