INSURANCE FUNDING PROPOSITION ON THE SCHEDULE

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The finance ministry is contemplating potential capital infusion in three state-owned general insurance companies that have reported losses over the first nine months of their financial year. If deemed necessary, the capital injection is anticipated to occur during the fourth quarter of the current fiscal year, as disclosed by informed sources.

The finance ministry had previously advised the three insurers—National Insurance Company Limited, Oriental Insurance Company Limited, and United India Insurance Company—to prioritize improving their financial performance and focus on underwriting sound insurance proposals rather than pursuing top-line growth.

The forthcoming financial review will shed light on the impact of the restructuring efforts on their profitability figures and solvency margin. The solvency margin represents the additional capital these insurers must maintain beyond expected claim liabilities, serving as a financial cushion for extreme scenarios, ensuring they can meet all claims.

Last year, the government allocated a capital infusion of Rs 5,000 crore to the aforementioned insurers. National Insurance Company Limited, based in Calcutta, received the largest share at Rs 3,700 crore, followed by Oriental Insurance Company Limited in Delhi with Rs 1,200 crore and United India Insurance Company in Chennai with Rs 100 crore.

It has been advised that these insurers enhance their solvency ratio to meet the regulatory requirement of 150 percent. The solvency ratio is a gauge of the insurer’s capital adequacy, with a higher ratio indicating a stronger financial position, better claims settlement capacity, and a preparedness to address future contingencies and business expansion plans.

Except for New India Assurance, the solvency ratio of the three public sector general insurance companies remained below the mandated 150 percent threshold. In recent years, the government infused substantial capital into these insurers, with Rs 2,500 crore in 2019-20, a significant increase to Rs 9,950 crore the following year, and another Rs 5,000 crore in 2021-22. In total, the government has injected Rs 17,450 crore into these firms to enhance their financial stability.

These public sector general insurance companies have initiated various reforms, encompassing organizational restructuring, product streamlining, cost efficiency, and digitalization, all aimed at deploying capital more efficiently and driving profitable growth.

Among the four government-owned general insurance companies, only New India Assurance Company is publicly listed, while the remaining three are wholly owned by the government. The government has publicly announced its intention to privatize one of these general insurance companies, for which Parliament has already sanctioned amendments to the General Insurance Business (Nationalization) Act (GIBNA).

In her Budget announcement for 2021-22, Finance Minister Nirmala Sitharaman unveiled plans for privatizing two public sector banks and one general insurance company, a move necessitating legislative adjustments.

Meanwhile, the insurance regulator, Irdai, has instructed general insurers to include coverage for employees traveling in their employer’s vehicles. The Madras High Court had directed Irdai to make IMT-29, an India Motor Tariff provision, mandatory for employees when issuing private car policies for these vehicles.

Irdai has mandated, “All general insurers engaged in motor insurance must include IMT-29 of the Indian Motor Tariff as an in-built coverage, making it compulsory for employees traveling in an employer’s vehicle, including a paid driver, where applicable, when issuing private car policies for such vehicles,” according to a circular issued by the regulator.

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