Finance Ministry Divided on PSU General Insurer Merger as Key Fault Lines Remain Unresolved
Despite periodic speculation of renewed momentum, the long-pending proposal to merge state-owned general insurance companies continues to face internal resistance, with the finance ministry divided over whether consolidation would meaningfully address the sector’s deep-rooted challenges.
Officials familiar with the discussions said the proposal remains at a preliminary assessment stage, with no formal execution plan, timeline, or consensus on structure. Differences over valuation, capital requirements, and the risk of combining weak balance sheets have kept the idea from progressing beyond internal deliberations.
The merger proposal involves National Insurance Company, Oriental Insurance Company and United India Insurance Company—three public sector general insurers that have struggled for years with underwriting losses, weak combined ratios and repeated reliance on government capital infusions to meet regulatory solvency norms.
A Proposal That Keeps Returning—but Goes Nowhere
The idea of consolidation first gained traction around 2018–19, when the government began reassessing the sustainability of public sector insurers amid mounting financial stress. Since then, the proposal has resurfaced repeatedly during discussions within the Department of Financial Services (DFS), inter-ministerial reviews, and consultations involving regulators and industry stakeholders.
Yet, nearly six years on, the process has not moved beyond exploratory evaluation.
“Every few years the merger idea comes back into focus, but it has not moved into detailed planning or execution,” a senior official said. “Key questions remain unresolved.”
Officials noted that while bank mergers delivered scale and balance sheet strength in some cases, it is far from clear whether the same logic applies to general insurance, where underwriting discipline and claims management play a far bigger role than balance sheet size alone.
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Valuation Disputes Block Any Forward Movement
One of the biggest stumbling blocks remains the lack of consensus on valuation and merger structure. Previous attempts stalled because the insurers could not agree on appointing a consultant to undertake valuation and structuring work.
Differences persist on:
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Valuation methodology and assumptions
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Treatment of legacy losses and stressed books
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Embedded value calculations
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Distribution of synergies or dis-synergies post-merger
“There is no agreement on whether all three insurers should be merged at once or whether consolidation should happen in stages,” a person familiar with the discussions said. “Without clarity on structure, everything else remains theoretical.”
Until these issues are resolved, officials say even preliminary decisions remain difficult.
Capital Adequacy Emerges as the Central Concern
Capital requirements are at the heart of the internal debate. All three insurers have depended on government capital infusions in recent years to maintain solvency ratios mandated by the Insurance Regulatory and Development Authority of India (IRDAI).
While significant taxpayer funds have already been injected, concerns persist that a merged entity could require even more capital if legacy losses are consolidated onto a single balance sheet.
“There is no clarity on whether capital should be infused before the merger, during consolidation, or after,” an official said. “That uncertainty makes it difficult to assess whether consolidation reduces the fiscal burden or increases it.”
Some officials favour linking any future capital support to clear operational milestones, such as improvements in combined ratios, underwriting discipline and claims efficiency. Others argue balance sheets must be cleaned up individually before any merger—an approach that could significantly delay consolidation.
Does Consolidation Fix Structural Weaknesses?
Beyond capital, policymakers remain divided on whether a merger would actually solve the insurers’ underlying problems.
Supporters argue consolidation could:
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Enable cost rationalisation through branch overlap reduction
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Improve risk pooling and pricing power
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Strengthen bargaining leverage with reinsurers
However, sceptics caution that merging financially weak entities without first fixing structural inefficiencies could amplify balance sheet stress rather than resolve it.
“A merger by itself does not fix underwriting discipline or claims management,” said an industry executive. “Without operational reforms, scale alone may not deliver sustainable improvement.”
Operational and Integration Risks Loom Large
Execution risks further complicate the proposal. The insurers operate with overlapping branch networks, legacy IT systems and large workforces governed by different service conditions. Integrating these elements would require extensive planning and political consensus, particularly from employee unions that have previously raised concerns over consolidation.
“There are real integration challenges,” said another industry executive.
“Without upfront clarity on governance, valuation and capital support, a merger could distract management for years without improving core performance metrics.”
Industry participants also point out that private insurers have steadily gained market share through superior pricing discipline, digital capabilities and faster claims settlement—areas where public sector insurers continue to lag.
Still an Idea, Not a Decision
For now, officials stress that no final decision has been taken. No consultant has been appointed, no merger structure finalised, and no capital strategy agreed upon.
“Until there is consensus on valuation, benefit-sharing and post-merger capital planning, this will remain an idea rather than a transaction,” a source said.
As things stand, the finance ministry’s internal divisions reflect a broader dilemma: whether consolidation is the solution for public sector general insurers, or whether deeper operational reform must come first. Until that question is resolved, the merger proposal is likely to remain on paper—periodically revived, but never quite executed.
