MC EXCLUSIVE PSU general insurance merger likely still at preliminary stage

Since then, the proposal has been deliberated multiple times within the Department of Financial Services (DFS), at inter-ministerial reviews, and during consultations involving insurers, regulators and policy advisers.

However, despite these discussions spanning nearly six years, the proposal has never progressed beyond exploratory evaluation. “Every few years the merger idea comes back into focus, but it has not moved into detailed planning or execution,” a senior official said. “Key questions remain unresolved.”

Repeated discussions, little progress

According to sources, the renewed push forms part of the government’s broader effort to strengthen public sector financial institutions, following earlier bank mergers and attempts to reduce the number of weaker state-owned entities.

Yet industry officials remain divided on whether merging general insurers would replicate the benefits seen in banking consolidation.

One of the earliest stumbling blocks, and one that continues to hold up progress, is the absence of consensus on valuation and merger structure. As Moneycontrol reported earlier, previous attempts stalled because the insurers could not agree on appointing a consultant to undertake valuation and merger structuring.

Differences persist over valuation methodology, assumptions around embedded value, treatment of legacy losses, and how potential synergies or dis-synergies would be distributed among the merged entities.

Industry officials say these disagreements have prevented even a preliminary decision on whether a three-way merger is feasible or whether a phased approach would be more prudent.

“There is no agreement on whether all three insurers should be merged at once or whether consolidation should happen in stages,” a person familiar with the discussions said. “Without clarity on structure, everything else remains theoretical.”

Capital adequacy at the centre of the debate

Capital requirements are emerging as one of the most contentious aspects of the proposal. All three insurers have relied on government capital infusions over the past few years to shore up solvency ratios mandated by the Insurance Regulatory and Development Authority of India (IRDAI).

While the government has already injected significant funds into public sector insurers, industry officials say concerns remain that a merged entity could require fresh capital support, especially if legacy losses and stressed underwriting books are combined into a single balance sheet.

“There is no clarity on whether capital should be infused before the merger, simultaneously with consolidation, or post-merger,” an official said.

“That uncertainty makes it difficult to assess whether consolidation actually reduces the fiscal burden or increases it.”

Sources say one option under internal discussion is to link capital infusion to operational milestones, such as improvements in combined ratios, claims management efficiency, and underwriting discipline.

Another approach being debated is addressing balance sheet stress at individual insurers before any merger, though that would significantly delay consolidation.

Officials are also divided on whether a merger would genuinely solve the insurers’ underlying problems. While consolidation could theoretically lead to cost rationalisation, better risk pooling and improved bargaining power with reinsurers, some policymakers worry that merging financially stressed entities without first fixing structural issues could amplify balance sheet weaknesses.

Operational and integration risks

Operational complexity further complicates the proposal. The three insurers have overlapping branch networks, legacy IT systems, and large workforces governed by different service conditions. Integrating these elements would require detailed planning and significant political buy-in, particularly from employee unions, which have previously expressed reservations about consolidation.

“There are real execution risks,” said an industry executive.

“Without upfront clarity on valuation, capital support and governance, a merger could become a prolonged transition that distracts management from improving core metrics like underwriting quality and claims settlement.”

Industry practitioners add that private insurers have gained market share largely through better pricing discipline, digital capabilities and faster claims processing—areas where public sector insurers still lag. A poorly sequenced merger, they warn, could slow reform rather than accelerate it.

Still a question, not a decision

While the merger continues to be discussed within government circles, officials stress that the proposal remains far from implementation. No final decision has been taken on structure, valuation methodology, capital strategy or sequencing, and no consultant has been appointed to move the process forward.

“Until there is consensus on valuation, benefit-sharing and post-merger capital planning, this will remain an idea rather than a transaction,” a source said.