The government is gearing up to review the financial and operational performance of state-run general insurance companies, including Oriental Insurance, National Insurance, and United India Insurance. This assessment aims to determine whether additional capital infusion is needed to strengthen their solvency ratios, which currently fall below the regulatory benchmark of 1.50, according to a senior official.
Addressing Solvency Challenges
Despite an improvement in financial performance, the insurers are struggling to meet regulatory solvency requirements. The government is expected to make a decision based on future projections and may allocate funds in the upcoming budget to address this issue.
Upcoming Insurance Amendment Bill to Reshape Sector
The review comes ahead of the anticipated Insurance Amendment Bill, which is likely to bring transformative changes to the sector. The bill proposes:
- Increasing foreign direct investment (FDI) in insurance to 100% from the current 74%.
- Reducing the minimum paid-up capital required for insurers.
- Allowing insurers to operate in multiple lines of businesses related to insurance.
The bill, which is set for the budget session, has already undergone public consultation, according to the official. Once passed, it is expected to open up the insurance sector further, intensifying competition and necessitating a strategic overhaul by public sector insurers.
Government Support and Industry Challenges
The government has already infused ₹17,450 crore between 2019-20 and 2021-22 into these three general insurers to bolster growth. However, challenges persist, with public sector general insurers recording underwriting losses of ₹18,862 crore in 2023-24, while their profit stood at a modest ₹157 crore.
Minister of State for Finance, Pankaj Chaudhary, previously highlighted efforts by these companies to improve profitability, including adopting key performance indicators (KPIs), enhancing IT capabilities, launching new products, and centralizing underwriting and claims processes.
Decline in Insurance Penetration
According to the Insurance Regulatory and Development Authority of India (IRDAI), India’s insurance penetration dropped to 3.7% in 2023-24 from 4% in 2022-23. Life insurance penetration fell from 3% to 2.8%, while non-life insurance remained stagnant at 1%.
Looking Ahead
The government’s review is expected to address pressing issues and ensure the financial stability of PSU insurers in the face of regulatory changes and growing competition. Strengthening the solvency ratios and redefining strategies could play a crucial role in revitalizing the public sector insurance landscape.
