By Venkatachari Jagannathan
Chennai, Feb 1 (IANS): The two major employee unions in the public sector general insurance companies on Thursday welcomed the central government's decision to merge three of the firms, but questioned the purpose of merger, saying this should be strengthening them, not just disinvestment.
They are of the view that the government should go one step further and merge all the four public sector general insurers.
In his budget speech on Thursday, Union Finance Minister Arun Jaitley announced the government's decision to merge National Insurance Company Ltd, United India Insurance Company Ltd and Oriental India Insurance Company Ltd and list it in the bourses.
While the merger of the government-owned insurers has been a long pending demand of the unions, they are against listing of the proposed merged entity.
"We welcome the process of merger, but not its purpose. The central government's purpose of merger is to disinvest some portion of its stake but not to strengthen them," K.Govindan, General Secretary, General Insurance Employees All India Association (GIEAIA) told IANS.
"Post merger, there will be unhealthy competition between two government-owned general insurers - New India Assurance and the new company that emerges out of the proposed merger," he added.
"Merger of all the four public sector general insurance companies (including the recently listed New India Assurance Company Ltd) has been our long standing demand. So, we welcome this partial step," Sanjay Jha, Secretary, Standing Committee, General Insurance at the All India Insurance Employees Association (AIIEA), told IANS.
"If merger proposal is for consolidation, then there is no economic logic to have another public sector company in the market, that is, New India Assurance. Our demand is to have a single public sector entity," he added.
Officials also said it will be a big task to build the brand equity for a new entity in a highly competitive market.
About the possible rationalisation of branches and employees following the merger of three companies, Jha said: "Any structural change upon merger needs detailed discussion with the unions by the management so that no aberration takes place."
He said the merger will stop the unhealthy competition between the government-owned insurers and all offices should be maintained to service the existing customers.
"The premium loss due to under cutting of the rates by the three companies is around 25 per cent," Jha said.
According to Jha, there will be around 6,000 branches and 45,000 employees in the three companies (National, Oriental and United India) put together.
Jha said the trigger for central government to go for merger of three general insurers is mainly to boost up their solvency ratio and divest part of its holding in the market.
An industry expert, who did not want to be named, told IANS that if the main purpose of merger is disinvestment, then "the investors will put in their money only after seeing the merged entity's functioning at least for a year".
"Merger could result in some economies of scale and reduction overheads. Consolidation will help. But it may lead to huge human resource issue," said another industry official.
He also added if some changes are made in calculating the solvency margins, then the three companies will have a strong balance sheet and two strong government insurers in the market will be good for the market.
Merging the three with New India may not be workable now but can happen in the future, he added.