‘The insurance market is fragmented. So creating large entities makes sense’

After the initial public offering (IPO) of New India Assurance last year, Kolkata-based National Insurance was next in line for an IPO early next fiscal year. With the government proposing the merger of the three public sector general insurance firms—Oriental Insurance, National Insurance and United India Assurance — National Insurance will now have to reprioritise its strategies, K SANATH KUMAR, chairman and managing director of National Insurance, tells Namrata Acharya. Edited excerpts:

What are your views on the merger of the three public sector general insurance firms?

The merger will increase the combined strength of the public sector insurance companies, and also add to the enterprise value. We hope that such a merger will bring more synergies and consolidation of market share. It would lead to the creation of the largest general insurance company in the country. Today the general insurance market is very fragmented. So creating large entities in a fragmented market makes sense.

What kind of synergy can we expect in the merged entity?

Different public sector general insurance companies have presence in different geographies, have different distribution channels and specific array of customers. For example, some companies have good presence in the power sector, others are good in retail, while others may have presence in oil and energy — so all these will lead to synergies.

What are the challenges in creating this insurance behemoth?

It would be a challenge to manage such a big company, but we have the necessary management expertise to oversee the merger and drive growth. One challenge would be technology, as we were in different platforms that has to be brought together. However, the challenge can be met with present technology. Also, there should be cultural convergence, which is also possible, since the salaries and terms of conditions of all employees are the same.

Would it be a challenge to rationalise the products since all the three companies have different offerings?

Most of the products are essentially similar with some finer aspects of differentiation.

Hence rationalisation of product will not be different. It is difficult to predict how the premium will move, whether it will go up or down.

What would be the expected size of the merged entity?

This will not simply be an addition of numbers, although the total premium income alone would be around ~400 billion. Then there will be a lot of convergence and rationalisation of offices as well.

You were in the process of having an IPO. Now with the sudden change in government decision, did you incur any cost?

It is very clear that the combined entity will go to the market. We haven’t appointed any merchant banker as yet. We are in discussions with the government.

What do you think is the rationale and the government’s thinking behind the merger?

In the banking sector also, the government had announced that there would be consolidation. So it is a continuation of the government’s vision of creating a larger government-owned entity in the financial sector. This is just a natural corollary.

What is the realistic timeframe for the merger?

I was told that the merger would be most likely finalised by the end of next financial year. The Insurance Nationalisation Act has to be amended and necessary permission for merger has to be acquired from the Insurance Regulatory and Development Authority (IRDA). Share transfer is not a challenge since the government holds 100 per cent.