India's Government Considers Merger of State-Owned Insurers

The Indian Ministry of Finance is currently reviewing the potential merger of three state-owned general insurance companies: Oriental Insurance, National Insurance, and United India Insurance. This initiative comes after signs of improved financial health among these firms, according to sources cited by the Press Trust of India.

This merger proposal aligns with an earlier plan introduced in the 2018-2019 Budget, which aimed to consolidate these entities into a single insurer to enhance operational efficiency and scale. However, the government had previously abandoned the merger in July 2020, opting instead for a significant capital infusion of ₹12,450 crore into the three companies, which were then experiencing considerable financial strain.

Since the capital infusion from 2019 to 2022, totalling ₹17,450 crore, these companies have shown signs of financial recovery. The Finance Ministry is now conducting a fresh preliminary assessment regarding the feasibility of the merger. Sources indicate that various options are under consideration, including the possibility of privatising one of the general insurance firms, as mentioned in the Budget for 2021-2022.

In a significant regulatory change, the General Insurance Business (Nationalisation) Amendment Act was passed by Parliament in August 2021. This legislation eliminated the requirement for the central government to maintain at least a 51% equity stake in certain insurance companies, thereby allowing for increased private investment aimed at bolstering insurance penetration and enhancing social protection in the country.

Additionally, to further facilitate foreign investment, the Indian government plans to introduce a bill during the upcoming Winter session of Parliament, scheduled from December 1 to December 19, 2025. This legislation aims to raise the foreign direct investment (FDI) limit in the insurance sector from the current 74% to 100%. This move is intended to attract more international players and expand insurance accessibility across India.

Union Finance Minister Nirmala Sitharaman has previously underscored the government's commitment to a broad privatisation agenda, which includes plans for the privatisation of select public sector banks and insurance companies. As the financial landscape evolves, the government's current considerations regarding mergers and privatisation reflect a strategic shift towards enhancing the overall efficiency and competitiveness of the insurance sector in India.