Demanding functional autonomy and opposing privatisation, the major unions in the government owned general insurers are not buying Finance Minister Nirmala Sitharaman's views about the reasons for the government amending the General Insurance Business (Nationalisation) Act, 1972.
The unions also do not rule out a Lakshmi Vilas Bank (LVB) style transfer of a government insurer.
On Friday the central government brought in The General Insurance Business (Nationalisation) Amendment Bill, 2021 in the Lok Sabha.
Speaking in the Parliament Sitharaman said the government is not privatising one of its general insurance companies, but bringing in enabling provisions so that there is public/common people participation in the company.
She said the private-public participation will bring in more resources from the market and for company's faster growth.
"If raising money from the public is the main reason for the amendment, then providing full functional autonomy to the company is the best option. I don't think this government is interested in full autonomy," Sanjay Jha, Secretary, Standing Committee (General Insurance), All India Insurance Employees'Association (AIIEA) told IANS.
The four PSU non-life insurers are: National Insurance Company Ltd, The New India Assurance Company Ltd (already listed), The Oriental Insurance Company Ltd and United India Insurance Company Ltd.
Sitharaman had earlier said one of the unlisted non-life insurers will be privatised.
As regards mobilising capital from the public, the two listed companies General Insurance Corporation and New India Assurance found it difficult when they came out with their initial public offer, the union officials said.
At the bourses, the scrip of New India Assurance is traded at a huge discount as compared to its private sector rival. The market discounts a PSU scrip owing to government's control.
"Who will be interested is the question. The foreign direct investment (FDI) has been increased from 49 per cent to 74 per cent. But the foreign promoters of 15 general insurers have not increased their stakes even to 49 per cent," K. Govindan, General Secretary, General Insurance Employees' All India Association (GIEAIA) told IANS.
Officials of PSU companies are open for full functional autonomy for the companies followed by an IPO if funds are needed.
The amendment bill could be for enabling the environment so that talks can be held between the central government and the potential bidders in a sincere and an efficient manner, is one view.
As to the objects of the amendment the government said: (i) to omit the proviso to section 10B of the Act so as to remove the requirement that the Central Government holds not less than fifty-one per cent. of the equity capital in a specified insurer;
(ii) to insert a new section 24B providing for cessation of application of the Act to such specified insurer on and from the date on which the Central Government ceases to have control over it; and
(iii) to insert a new section 31A providing for liability of a director of specified insurer, who is not a whole-time director, in respect of such acts of omission or commission of the specified insurer which has been committed with his knowledge and with his consent.
On Friday, Sitharaman also said the private general insurers have greater penetration and raised more money from the market and therefore give a better premium for public and innovative covers. On the other hand, the government insurers are not able to perform as they are short of resources.
Responding to that Jha said: "In 2019-20 the four PSU general insurers issued about 7.33 crore policies. The numbers of last fiscal will be similar. One should compare this with the number of policies issued by the private players to calculate insurance penetration."
Incidentally, low insurance penetration, more money for infrastructure, increasing competition were some of the reasons said in 2000 while opening up the sector for private participation.
According to Jha, general insurance penetration is closely linked with the economic growth (that would bring in new industrial investments, jobs) and the disposable income with an individual.
He said there is no economic growth and hence no new projects for the insurers to insure. Further the job losses and pay cuts due to Covid-19 has not left anything in the pockets of common man to look for a general insurance policy.
As regards competition and choice for the insuring public, there are now 21 general insurers and seven standalone health insurers.
"Two decades after private sector's entry, the market share of four PSU's stand at about 42 per cent and the balance is shared by 24 players," Jha said.
As regards Sitharaman's charge of private general insurers are offering insurance coverage at a lower price as compared to PSU's Govindan countered that pointing the third party premium in the motor insurance which is always on the upswing.
Govindan said only on the pressure of the private sector the third party premium is on the rise and they do not want market forces to determine the rates as in the case of other business.
Both Jha and Govindan said the industry unions would discuss and decide on the future course of action opposing the amendment bill.
Officials of both the unions will meet the Members of Parliament and seek their support in favour of PSUs.
While the unions in the PSU companies are against the government's move, they do not expect the government to do a `LVB'out of the insurer to be privatised.
In the case of LVB with huge non-performing assets and eroded networth, the Reserve Bank of India (RBI) and the government without calling for an open bid palmed the private bank to DBS Bank.
Jha said he does not expect the government to do a LVB with an insurer but does not rule out such a thing by the centre.
The LVB shareholders did not get anything from the transfer, whereas the centre wants revenue from the sale.
The two union officials declined to comment when queried whether they would demand transfer of officials of the privatised PSU insurer to the remaining three government companies.
They said they would cross that bridge when that situation arises.
(Venkatachari Jagannathan can be contacted at email@example.com)
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