Divestment in General Insurance to Attract Innovation, Growth: Experts

It will increase competition, lead to improved management, efficiencies, new products and customer orientation

Divestment in General Insurance to Attract Innovation, Growth: Experts
Divestment in General Insurance to Attract Innovation, Growth: Experts
Murtuza Merchant - 05 August 2021

Hailing the passing of legislation that enables the government to sell its majority stake in state-owned insurance companies, experts say the move will help achieve revival and growth of the country and nurture innovation and promote penetration of the sector.

Amid vociferous protests over the Pegasus row and farm bills by the opposition parties, the Lok Sabha passed a bill to amend the General Insurance law that allows the government to reduce its stake in state-owned insurance companies.

The General Insurance Business (Nationalisation) Amendment Bill aims to generate necessary resources from Indian markets to design innovative products for public sector general insurers.

The bill seeks to remove the requirement that the Central Government hold not less than 51 per cent of the equity capital in a specified insurer. It also calls for greater private participation in the public sector insurance companies to enhance penetration, social protection and better secure policyholders' interests.

Jyoti Prakash Gadia, Managing Director, Resurgent India, said the move provides a two-way opportunity for the government to achieve its objectives of revival and growth. "As a part of the strategy of massive disinvestment for garnering funds, this is a welcome step. This will provide the much-needed funds to offset the growing deficit. Besides, resources are also required for crucial infrastructure and health sectors."

"Simultaneously, this will increase competition among the private players, which will ultimately lead to greater professional management, improve efficiencies, evolution of new products and customer orientation," she said.

Gadia added that the success of several private companies in the market indicates that this can create a win-win situation for all the stakeholders.

Shivaprasad Krishnan, Founder & CEO, KRICON Capital & GAME Finance Taskforce member said that companies will now have a level playing field and that state-owned insurers will now have the freedom to access capital, talent, and technology with the least friction cost and with the sole objective of seeking a competitive advantage.

"With their formidable balance sheets and strong distribution architecture, an increase in competitive intensity is inevitable, hopefully leading to accelerated product innovation serving the underserved segments in both India and Bharat," he added.

Yasin Bijapori, Senior Associate - Investment Banking with Sharjah Islamic Bank, said aside from helping reach the government's disinvestment targets, this move is expected to nurture innovation and promote penetration of the general insurance sector in India.

He added that the existing distribution channels and widely spread branch networks will be tapped to promote possibly newer products through new marketing methods. "These institutions may also take a quasi-governmental approach to deal with existing resources as the new board of directors or management will want higher efficiencies soon.," Bijapori further said.

Finance minister Nirmal Sitharaman introduced the Bill at Lok Sabha on July 30, 2021. In her budget speech, she also announced that two public sector banks and one general insurance company would be taken up under the government's privatisation plan.

There are four state-owned general insurers: National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited, and the United India Insurance Company Limited.

The author is a financial blogger

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.


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