The parliament has had some fierce moments recently. There have been strong protests from the opposition parties against the ruling party. The brawl is so strong that the current government passed 25 bills in 21 minutes in Lok Sabha on a working day without any discussion whatsoever. One such bill was the General Insurance Business (Nationalisation) Amendment Bill, 2021.
Since coming to power, the current government has been pushing for the privatization of certain government-owned or Public Sector enterprises. The government has now turned to privatize the public sector general insurance companies. Why is the government privatizing the General Insurance business? How will this impact the Indian Economy? Let us find out.
What is General Insurance?
All those insurance policies that are not Life Insurance fall under this category. Insurance for events like theft, motor vehicle accident, fire, loss of goods, floods, health insurance, etc, falls under this category.
There are a few government-owned general insurance companies. Four companies fall under the General Insurance Business (Nationalisation) Amendment Bill 2021:
- National Insurance.
- New India Assurance.
- Oriental Insurance.
- United India Insurance
General Insurance Corporation (GICRE) and New India Assurance (NIACL) are listed companies on the NSE and BSE.
With the General Insurance Business (Nationalisation) Act 1972, the government ‘nationalized’ the insurance sector. In layman’s terms, the government took 100% ownership of the entire sector. The government, however, relaxed these rules and allowed foreign and private investment into these companies later. Before the bill, the government HAD to hold a majority stake (51%) in each of the companies mentioned above.
What is The General Insurance Business (Nationalisation) Amendment Bill, 2021?
The bill seeks to make the following reforms in the government-owned general insurance business:
- Remove Government Shareholding Threshold: It removes the requirement for the Centre to hold at least 51 percent of the equity in an insurance company. This means that the government can privatize the respective companies at any convenient time.
- Transfer Administrative And Operational Control From Government: The bill’s main objective is to transfer the administrative and operational responsibilities from the government to the directors or other stakeholders. There is another provision that states that as soon as a company becomes privatized, it will no longer fall under the provisions of the General Insurance Business (Nationalisation) Act 1972
- Defines Responsibilities And Liabilities Of Directors Of Companies.
The bill specifies that a director, who is not a whole-time director, will be held liable only for certain acts. These include actions that have been committed:
- With their knowledge and with their consent.
- With their consent or connivance or where they had not acted diligently.
Why Is There Opposition To The Bill?
After total privatization, the company can change its employee policy and can make some major restructuring in the company. Essentially, it can fire some of its employees that aren’t effective. Employees’ unions will lose their power significantly since their private shareholders may not be as considerate as the government in accepting their demands.
Some of the employees of the public sector insurance companies are liable for insurance after retirement. The policy, however, might change after privatization. The government hasn’t given an assurance that the pension fund will remain intact.
There is always a sense of security in buying insurance policies from a public sector insurance company. After privatization, the policyholders might see some changes in the insurance policies that they have applied for; this could work against their favor.
The government wants to privatize certain companies to:
- Generate revenue.
- Improve efficiency of the companies
- Desire a higher level of service.
- Get necessary expertise that otherwise might not be available.
- Allow flexibility in the functioning of the company.
- Get rid of the burden of loss-making companies.
Privatization of these companies won’t be an easy task. The government will have to announce provisions for its former or current employees who might not want to be a part of the privatization process. This law has just given the government the power to privatize, it doesn’t hint that the process will happen soon.
In the last parliament budget session, Finance Minister Nirmala Sitharaman said that the government plans to privatize at least one general insurance company and two public sector banks by the end of 2021. There are some reports suggesting the privatization of United India Insurance by year-end.
For the two listed companies, General Insurance Corporation and New India Assurance, this could mean a fresh issue of shares or a sale of existing shares. This would eventually mean a higher public shareholding.
Do you think that the privatization of the general insurance business would do any good for the companies? You can let us know in the comment section in the marketfeed app for Android and iOS.