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62 India Insurance Report - Series II

Systemically Important Insurers (D-SIIs – which means their distress or failure would cause a significant
dislocation in the domestic financial system). They would be subjected to enhanced regulatory supervision
to deal with systemic risks and moral hazard issues. These entities have been asked to raise the level of
corporate governance, and identify all relevant risks and promote a sound risk management culture.
This sounds like an oxymoron since the PSU insurers have been a recipient of governance processes
instituted by the administrative ministry of the government from the very beginning.

After fifty years of insurance nationalisation, government companies cannot still be seen as an
enterprise driven by social purpose considerations – and not necessarily policyholders’ interests. It is
important, therefore, that all the PSU insurers doing life, general, crop, trade credit, and reinsurance are
enabled a professional set-up under the umbrella of a fully independent, autonomous and empowered
holding company, entrusted with the governance and oversight of the management of the PSU Insurers.
The day-to-day administrative ministry control should cease. The holding company board will
independently set all policy standards under the “delegated authority” from the Government of India.
The Board will negotiate fresh paradigms and independence for its entities’ accountability to the Central
Bureau of Investigation (CBI), Comptroller and Auditor General of India (CAG) and Central Vigilance
Commission (CVC). There must be a need for wide-ranging human resource policy changes in line with
the competitive environment and compensations that will include short term variable components, better
incentivizing and allowing compensations through long-term stock options, and an eye for long-term
succession planning. The holding company board can have sweat equity for running a long-haul project.

The first step should be the merger of the four general insurance companies (New India Assurance,
National Insurance, Oriental Insurance and United India Insurance) and combine their strengths. As of
now, they are only clawing at each other and weakening themselves. The purpose of having four competing
companies no longer exists, and the need is for a single strong entity, like LIC of India.

The regulatory responsibility to protect market oversight (for sustainable and profitable growth of
all entities that all stakeholders value) and accountability to provide Ease of Doing Insurance Business
Framework finds resonance with all the stakeholders at all times. Just as poor insurance penetration is a
plumbing issue, so is the governance of the PSU insurers. The government has already tried all the tools
– divestments and intended privatisation (of one entity, leaving the larger pool). None of these tools
seems to be working. It’s time for autonomous governance under a professional insurance helmsmanship
– from India or overseas - who, with their steady hand on the tiller, will make ownership appear neutral
and make the PSU Insurers into a world-class insurance provider.

5. Conclusion

The PSU Insurers’ contribution, besides securing inclusion and helping the national GDP, is essential
to increase India’s geo-strategic reach in the new world order, where India’s expanse and utility will only
rise. This will be one of the many preparatory levers for 2047.