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The three companies are National Insurance, Oriental Insurance and United India Insurance.At a time when consolidation is happening among the private general insurers, experts to whom spoke to were baffled at the government's idea of demerger instead of merging the three firms as announced earlier.The experts also voiced their opposition to another government-owned general insurer, New India Assurance, that went public taking over the other three companies or taking substantial stake in the company that emerge after their merger."New India taking over substantial stake in the new entity that is formed after merging the three companies, is like putting good money after bad money," R. Raghavan, former General Manager, General Insurance Corporation of India and the founder-CEO of the Insurance Information Bureau."The Finance Minister should give a stern direction to the heads of PSU general insurers to focus on growing their profits than the topline. The three PSUs are undercutting each other to grow their gross premium income," an expert told on the condition of anonymity.In his 2018 budget speech, then Finance Minister Arun Jaitley announced the government's decision to merge National Insurance, United India and the Oriental Insurance Company and list it in the bourses."Subsequently the government had selected EY as the consultant to advise on the merger. The consultant is yet to initiate its job, as informed to us by GIPSA (General Insurance Public Sector Association)," Sanjay Jha, Secretary Standing Committee (General Insurance) All India Insurance Employees Association (AIIEA), told .However there was no progress after that."With the continuity in the elected government ensured, hope of action on the merger of the three PSU general insurers, is bound to gather momentum now," K.K. Srinivasan, former member, Insurance Regulatory and Development Authority of India (IRDAI), told .According to Srinivasan, merger of three weak companies may not immediately create one strong company. But it will surely eliminate suicidal business competition among them."After the budget speech of 2018-19, there was a period of uncertainty, coupled delays in appointment of Chairman and Managing Directors (CMD) of two out of three companies appears to have adversely affected the performance of the three. Any further inaction will not augur well for the health of these companies," Srinivasan said.Speaking about the demerger idea - breaking the PSUs into smaller outfits - Srinivasan said it does not appear to be realistic as it would result in creation of more government owned companies."For multi-line general insurers there are inherent synergies and cross subsidisation. For the PSUs that are in existence for the past several decades the synergies get inbuilt. As a result, demerger will not work," an industry expert preferring anonymity told ."Nearly 70 per cent of total business for the insurers is from motor and health portfolios. The severe undercutting in the fire insurance business has cut down the size of this portfolio. So, what lines of business to be demerged and what loss making business to be turned profitable," Raghavan said."The demerger idea is doubtful and there is no official confirmation. Demerger will not give the financial benefits that the government is expecting and will not serve any purpose," K. Govindan, General Secretary, General Insurance Employees All India Association (GIEAIA), told .The experts are of the view that Sitharaman should give a stern direction to the CMDs of PSU insurers to focus on profitability."Once the companies improve their profitability then the government can kick start the process of merging them. That way the government can unlock better value by listing the merged entity," they said.According to them, demerger or merging the three companies and New India taking substantial stake in the merged entity will be a wrong strategy.The experts said that insurance was a business of large numbers and size does matter in terms of risk retention, financial strength and other aspects.On their part, the Unions in the sector are for merging all the four companies into a single entity that will bring a "synergy effect" resulting into cost-effectiveness, reduced management expenses, increased risk retention capacity, increase in retained premium (less outgo on re-insurance), bringing out innovative products and better utilisation of assets.According to the AIIEA, if the four PSU general insurers are merged into a single entity, it will be a behemoth organisation with a strong base of about Rs 70,000 crore of gross domestic premium and Rs 2,25,000 crore worth assets.Meanwhile Srinivasan said: "A clear idea on the restructuring of the three insurers will perhaps emerge in if the subject matter finds a place in the ensuing Sitharaman's maiden Union Budget."But if the matter is not touched in the ensuing Budget, media speculations will continue. Also the rot in the three PSUs will worsen."(Venkatachari Jagannathan can be contacted at v.jagannathan@.in)( With inputs from IANS )

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