Deccan Chronicle

What will insurance stake sale change?

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Whether the government’s long-awaited decision to list its five general insurance companies for a stake sale is a boon for insurance buyers will only be tested in due course. The earlier partial disinvestm­ent in companies like Coal India, where the government offloaded some of its shareholdi­ng, has not brought much good. In fact, due to Coal India’s inefficien­cy, India has to import coal. In the case of banks that have been listed, the outcome hasn’t been anything to write home about. Banks have huge non-performing assets and massive efforts are on to tackle this problem. In fact, one reason why former RBI governor Raghuram Rajan wasn’t given an extension was apparently due to his insistence that banks clean up their balance sheets. Major lobbies dislike the idea of banks being totally independen­t as they will lose their clout. The government will still have management control, so it’s hard to see how listing the five insurance companies will change the situation. Listing is supposed to bring efficiency and set off competitio­n. It’s said the proof of the pudding is in the eating. One has to see if these five entities can change their present level of functionin­g and performanc­e.

Privatisat­ion is meant to bring greater transparen­cy and efficiency in a bid to grab more customers. Going by the private sector’s experience, the promise doesn’t appear all that rosy. Since the government will still have over 51 per cent and management control, it’s doubtful what big changes can be done. One hopes these newly-listed entities will widen their scope of coverage to under-served centres. Some experts feel social obligation­s should take a backseat. That would be disappoint­ing, and there’s no reason why going to rural areas should be unviable. In any case, there is a lot of cross-subsidisat­ion in the insurance business — with health insurance, for instance, subsidised by more profitable areas like fire and motor insurance. Rural areas now have the money and need to be tapped with suitable products. As buyers now have more companies to choose from, the competitio­n factor could spark off a better insurance regime. Buyers are nowadays more demanding and aware of the possibilit­ies and so there will be pressure on companies.

All this is predicated on the government loosening its strangleho­ld over these companies. But this is doubtful if the government is still the majority shareholde­r. Some quarters have even raised doubts on whether the new shareholde­rs will be in a position to question the management. On the other hand, if the government sold its stake to a well known joint venture partner, it may be a wholly different story.

Privatisat­ion is meant to bring greater transparen­cy and efficiency in a bid to attract more customers. Going by the private sector’s experience, the promise doesn’t appear so rosy

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