Size matters. Or does it? That was the dilemma facing Suhas Nair and his team. The issue under discussion was the restructuring of Indian General Insurance Ltd. (IGIL), the largest, state-owned, non-life firm in the country. Nair had a personal stake too. His tenure as chairman and Managing Director of IGIL was to end in two years. And he was keen on hanging up his boots on a high note. Nair opened the meeting: “Should we merge the four subsidiaries of IGIL into a single outfit that would give us the advantage of size?” “Or should we delink them into learner, autonomous, and agile unit?”
“Just to provide a perspective,” said Rajiv Parasnis, Director (Management Services), “consolidation is the global trend. Look at Japan. The top six insurers are in merger-talks.” “Out context is different,” said Anup Sinha, Director (Personnel). “First, the insurance markets where consolidation is taking place are mature, making it easier to diversify into other financial services, invest in technology, and expand our operations. A merger will also help integrate our business.”
“Let us look at the numbers,” said Abhinav Saran, Director (Finance), punching some keys on his laptop. “A merger will bring in 85,000 employees one roof. We will have a total of 80 regional offices, 1,200 divisional offices, and 2,920 branch offices. Out combined free services would be Rs. 6,450 crore, net worth Rs. 7,360 crore, investment income Rs. 2,350 crore, and total investment Rs. 19,000 crore. And all this on a modest equity of Rs.375 crore! We can leverage this enormous clout to attract new business. We will also be able to reduce overhead costs. Like the rent outflow, for example. A merger prevents duplications of branches resulting in huge savings. And that is just one example.”
“But, Abhinav,” chipped in Suresh Talwar, the newly-appointed Director (IT), “a merger will pose problems of integration. This becomes a time-consuming activity for senior managers, overriding their business concerns. True, each of our subsidiaries is financially strong. However, each segment of non-life insurance has different parameters of performance. There is simply no parity. That is why it is best to set up an autonomous unit for each activity of non-life business.”
“Talwar has a point”, remarked Vijay Santoor, Director (Operations). “A merger downplays all the inherent weaknesses in the system. Take, for example, our motor portfolio. It represents over 30% of the total premium. But is a loss-making line in all our subsidiaries mainly because of laxity in underwriting and claims control? Once you spin it off, you ensure discipline. Of course, you need to move of the current pattern of cross-holding among subsidiaries and make each of them truly independent.”
“Both approaches have their merits,” said Nair. “There is also the growing business of reinsurance. If we decide on a break-up, it makes sense to convert IGIL from a holding company to a national reinsurer. If we merge, we may be able to live up to our corporate vision of being among the world’s majors in non-life by 2015. Still, given the right focus, there is no reason why some of our sectoral businesses cannot reach a global scale.
1.What are the threats being faced by Indian General Insurance Ltd. (IGIL)?
2.What are its traditional strengths? What ‘business definitions’ should it follow while capitalizing on its traditional strengths?
3.Would you suggest restructuring of IGIL? Why or Why not?
4.What strategies should IGIL follow to retain its market leadership?