As a first step towards delinking the General Insurance Corporation (GIC) from its four subsidiaries, the GIC chairman has been divested of the power to prepare confidential reports (CRs) on the chairmen-cum-managing directors of its four arms.
This capacity is now vested with the finance ministry itself. The delinking of GIC is essentially based on the recommendations of the R N Malhotra committee on insurance sector reform.
The decision to curb the power of the GIC chairman on this specific issue was taken about a month ago. Alongside, the government is also likely to take a final decision on enhancing the capital bases of the four subsidiaries to at least Rs 100 crore each from the present levels of Rs 40 crore.
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Till today, all the four general insurance arms are wholly owned by GIC, which in turn is fully owned by the government of India. After the Union budget, key changes in the insurance sector have been put on the priority list of the government. The government is moving at a steady pace as regards the implementation of the Malhotra committee report on insurance sector reforms. The committee had recommended turning GIC into a separate company and according fully independent status to its four insurance arms -- New India Assurance Company, Oriental Insurance Company, National Insurance Company and United India Insurance Company.
GIC, as it appears, will concentrate on the reinsurance business only and will lose control over the four subsidiaries. The committee reported that the nationalised four insurance arms are financially strong and have built up a large infrastructure in terms of professional talent, marketing and servicing networks.
GIC's stranglehold on the four subsidiaries needs to be loosened to allow these insurance companies to gear up for competition that will come up with the emergence of private sector insurance firms.
With knowledge of the scaled down powers of GIC trickling down the ranks of the insurance sector, the post of chairman for the apex body is no longer a coveted one for aspirants in the general insurance sector.
However, despite this, D Sengupta has moved away from New India Assurance Company, where he was CMD, to GIC as its new chairman.
But with his successor at New India still to be named, Sengupta is holding concurrent charge as CMD in New India Assurance, an unprecedented development in the public sector monopoly of the general insurance industry.
It is believed that after the clear signal of curbed authority of the GIC chairman, the government will take steps to further strengthen the four nationalised insurance companies.
One such issue will be the raising of the capital base. This is inescapable as the principle of equity demands that alongwith the private sector parties, the nationalised companies will have to ensure a minimum capital base of Rs 100 crore. Since GIC presently holds the entire stake in the nationalised insurance companies, the government will have to decide on whether there will be a change in the pattern in the new scenario.