Govt asks public insurers to move out of motor, health insurance to reduce losses: DFS Secy

Financial Services Secretary Vivek Joshi

The Union government has asked the public sector insurance companies, who are struggling to improve their solvency ratio and profits, to come out of motor and health insurance segments, which have been identified as significant loss-making areas. This directive comes as part of a broader strategy to enhance the financial health and operational efficiency of these insurers, Department of Financial Services Secretary Vivek Joshi said.

"We are nudging them not to focus on toplines. Earlier they used to take business to show growth. Now we are asking them to come out of loss-making segments like motor and health insurance," Joshi told Moneycontrol in an interview. The move is aimed at reducing the burden of unlimited liability claims associated with motor insurance and high claim ratios in health insurance.

The three major public sector insurers – United India Insurance Company (UIIC), National Insurance Company Limited (NICL), and Oriental Insurance Company Limited (OICL) – received a combined capital infusion of Rs 17,500 crore in two phases, with Rs 9,950 crore injected in FY 2019-20 and Rs 7,500 crore in FY 2020-21.

The government’s directive to move away from motor and health insurance is part of a strategy to steer these companies towards more profitable and manageable segments. Motor insurance, in particular, has been problematic due to the unlimited liability associated with accident claims, unlike aviation and railway insurance, which have caps on claims.

Against expectations, the Union Budget did not announce any fresh capital infusion for the public insurers. The performance of these public sector insurers will be reviewed in FY25 to plan any further capital infusion, he said.

Last year’s performance of these public insurance companies has been good. United India Insurance (UIIC) has made a remarkable turnaround, reducing its losses from Rs 5,000 crore in FY23 to a profit of Rs 19 crore in FY24. NICL has significantly narrowed its losses from Rs 3,800 crore in FY23 to Rs 187 crore in FY24. Similarly, OICL has seen its losses decrease from Rs 2,800 crore in FY23 to Rs 800 crore in FY24. New India Assurance has continued to perform well, increasing its profits from Rs 1,000 crore in FY23 to Rs 1,100 crore in FY24.

In addition to the shift in focus, the government is also addressing operational issues within these insurers. "A lot of employees retired, and there was a ban on hiring new staff. But now they are asked to recruit in a balanced way. We expect them to strengthen further," the financial services secretary said.