India’s Insurance Shake-Up: Merger of State Insurers and the Road to Reform 

India’s Finance Ministry is reassessing a previously shelved plan to merge three state-owned general insurers—Oriental Insurance, National Insurance, and United India Insurance—into a single entity to enhance operational efficiency and strengthen their competitive position in a market where private players now dominate. This renewed consolidation discussion, fueled by improved balance sheets following a substantial government capital infusion of ₹17,450 crore, forms part of a broader reform agenda that also includes the potential privatisation of a general insurance company and a legislative proposal to raise the foreign direct investment limit in the sector from 74% to 100%, all aimed at revitalising public insurers and increasing insurance penetration in the country.

India’s Insurance Shake-Up: Merger of State Insurers and the Road to Reform 

Executive Summary 

India’s insurance sector is poised for a significant transformation as the government revisits a long-pending merger proposal involving three state-owned general insurance companies. This strategic consolidation aims to create a more robust entity capable of competing effectively in an increasingly dynamic market. The potential merger of Oriental Insurance, National Insurance, and United India Insurance represents a pivotal development in India’s broader insurance reform agenda, which also includes privatization initiatives and liberalized foreign investment norms. With the government planning to introduce legislation raising the foreign direct investment (FDI) limit in insurance to 100%, the sector is entering a new phase of potential growth and transformation. This comprehensive analysis examines the drivers, implications, and future prospects of these structural reforms that could reshape India’s insurance landscape and accelerate progress toward the regulator’s vision of ‘Insurance for All by 2047.’ 

Introduction: The Merger Proposal Revisited 

The Indian government is once again examining the possibility of merging three public sector general insurance companies – Oriental Insurance, National Insurance, and United India Insurance – according to multiple reports from authoritative sources. This revived consolidation plan comes after significant financial stabilization of these companies through substantial government capital infusion. The Finance Ministry’s preliminary assessment focuses on whether combining these entities would yield operational benefits and strengthen competitive positioning in a market where private insurers have steadily gained market share. 

This renewed discussion represents a return to earlier structural reform conversations that have been postponed multiple times. The proposal, if implemented, would create a single insurance entity with greater scale and efficiency to compete more effectively in the non-life insurance market. The evaluation occurs alongside other significant reforms, including the privatization of a general insurance company and a proposed increase in the foreign direct investment limit to 100%, positioning the insurance sector as a key focus area in India’s economic reform agenda. 

Historical Context of the Merger Proposal 

The merger proposal has a considerable history, with its origins in the 2018-19 Budget speech by the then Finance Minister Arun Jaitley, who announced that the three companies would be integrated into a single insurance entity. This initial proposal was part of a broader structural reform initiative aimed at improving the efficiency and financial viability of public sector enterprises. However, in a strategic shift in July 2020, the government shelved the merger plan and instead approved a capital infusion of ₹12,450 crore into the three insurers to address their immediate financial challenges. 

Between 2019-20 and 2021-22, the government infused a total of ₹17,450 crore into these companies to bring them out of financial distress. This substantial capital support has significantly improved their financial health, making them potentially more viable candidates for consolidation. With their balance sheets now strengthened, the Finance Ministry has recommenced assessment of whether a merger would deliver enhanced operational efficiency and expanded market presence, reviving a reform that had been in abeyance for several years. 

Factors Driving the Renewed Merger Interest 

Improved Financial Health 

The substantial capital infusion of ₹17,450 crore between 2019-20 and 2021-22 has significantly strengthened the balance sheets of the three public sector insurers. This financial stabilization has transformed them from distressed entities to potentially viable partners in a consolidated structure, making the merger proposition more feasible than during previous considerations. 

Efficiency and Scale Objectives 

The primary rationale behind the merger is to achieve operational synergies and economies of scale. A combined entity would have a larger capital base, expanded distribution network, and greater underwriting capacity, enabling it to compete more effectively against private sector players who have been steadily gaining market share. 

Competitive Market Pressures 

The Indian general insurance market has witnessed a significant shift in competitive dynamics. Private non-life operators, including standalone health insurers, currently command approximately 60% market share, while public sector insurers have seen their combined position expand to 31.7% based on year-to-date metrics. This competitive pressure has created urgency for structural reforms among public sector insurers. 

The Broader Insurance Reform Agenda 

Privatization Initiatives 

Parallel to the merger discussions, the government is also examining options for privatizing a general insurance company, as announced in the 2021-22 Budget. This would align with the government’s broader privatization agenda, which also included plans to privatize two public sector banks alongside one general insurance company. The General Insurance Business (Nationalisation) Amendment Act, 2021, approved by Parliament in August 2021, facilitated this by eliminating the requirement that the central government hold at least 51% equity in specified insurers. 

Liberalizing Foreign Investment 

In a significant move to attract global players and additional capital, the government plans to introduce a bill in the Winter Session of Parliament (December 1 to December 19) to raise the foreign direct investment (FDI) limit in insurance to 100% from the current cap of 74%. This proposed amendment to the Insurance Act, 1938, is part of a comprehensive legislative exercise that also includes amendments to the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999. So far, the insurance sector has attracted ₹82,000 crore through FDI, and this increase could significantly boost capital inflows. 

Table: Key Reforms in India’s Insurance Sector 

Market Context and Growth Dynamics 

Sector Performance 

The timing of these policy reviews coincides with expanded activity in India’s non-life insurance markets. According to research by CARE Ratings, gross premium collections in September 2025 totaled ₹31,117.6 crore, representing a 13.2% annual increase. This performance reversed a 6.5% contraction recorded in the same month one year prior and exceeded the 1.6% growth recorded in August 2025. This robust growth indicates a healthy sector recovery, creating a favorable environment for structural reforms. 

Growth Drivers 

Several factors are driving growth in India’s insurance sector: 

• Economic Development: Rising healthcare costs, a growing middle class, and greater awareness following the pandemic have positioned the insurance industry at the start of a penetration S-curve, with potential for rapid growth and profitability . 

• Digital Transformation: The rise of digital-only insurers and aggregator platforms is opening new avenues for reaching untapped customer segments, particularly millennials and rural populations . 

• Product Innovation: Platforms like IRDAI’s “Bima Sugam” are simplifying policy purchase and comparison, while insurers are developing more tailored products to meet diverse customer needs . 

• Government Schemes: Insurance cover for 74.6 crore persons under PM Suraksha Bima and PM Jeevan Jyoti Yojana has expanded the market and increased awareness . 

Competitive Landscape 

The Indian general insurance market features a mix of public and private players, with the competitive landscape including companies like New India Assurance, ICICI Lombard General, Bajaj Allianz General, and the three entities under consideration for merger – United India Insurance, Oriental Insurance, and National Insurance . The potential merger would create a larger entity that could more effectively compete in this crowded marketplace. 

Strategic Implications and Challenges 

Potential Benefits of Consolidation 

Enhanced Operational Efficiency 

A merged entity could eliminate duplicate functions and streamline operations, resulting in significant cost savings. This could be particularly beneficial in areas such as technology infrastructure, marketing, and administration where combined resources could yield better outcomes than separate investments by three individual companies. 

Strengthened Market Position 

The consolidation would create a larger single entity with greater financial strength and underwriting capacity. This would enhance its ability to secure larger corporate accounts and compete more effectively for specialized insurance segments that require substantial capital backing. 

Improved Risk Management 

A combined entity with a diversified portfolio across multiple lines of business and geographic regions would have better risk distribution capabilities. This would potentially lead to more stable financial performance and enhanced ability to withstand sector-specific shocks. 

Implementation Challenges 

Cultural Integration 

Merging three established organizations with distinct corporate cultures and legacy systems represents a significant change management challenge. Success would require careful planning and execution to integrate workflows, technology platforms, and human resources effectively. 

Regulatory Hurdles 

The merger would require approvals from multiple regulatory bodies, including the Insurance Regulatory and Development Authority of India (IRDAI), and would need to comply with competition guidelines. The process would need to ensure that policyholder interests are protected throughout the transition. 

Operational Complexities 

Integrating technology systems, product portfolios, and distribution networks across three companies would be operationally complex. This would require significant investments in technology and careful planning to avoid disruption to customer service. 

The Road Ahead: Strategic Outlook 

Path to Implementation 

If the preliminary assessment is favorable, the merger process would likely proceed through multiple stages, including detailed due diligence, regulatory approvals, and a phased integration process. Given the historical context, the government may consider implementing the merger in the lead-up to the Budget for the financial year 2026-27 . 

Complementary Reforms 

The merger discussion should be viewed alongside other insurance sector reforms, including: 

• Privatization Initiatives: The government’s plan to privatize a general insurance company could be implemented either before or after the merger, potentially creating a more attractive asset for potential investors through consolidation . 

• FDI Liberalization: Raising the FDI limit to 100% would make the merged entity potentially more attractive to foreign partners, who could bring technical expertise and additional capital . 

• Digital Transformation: As noted by McKinsey, prioritizing innovation through digital channels and new products will be critical for longer-term growth, regardless of the ownership structure . 

Long-term Vision 

These reforms align with IRDAI’s vision of ‘Insurance for All by 2047,’ which aims to ensure that every citizen has appropriate insurance coverage. The merger of public sector insurers, combined with other reforms, could significantly contribute to achieving this goal by creating a more robust and efficient insurance ecosystem. 

Conclusion: Navigating a Transformative Phase 

India’s insurance sector stands at a pivotal juncture, with the potential merger of three public sector general insurers representing one of the most significant structural reforms in recent years. The revived proposal comes at a time when the industry is experiencing robust growth, digital transformation, and increasing competition. By consolidating these entities, the government aims to create a more efficient and competitive public sector insurance player that can effectively serve the evolving needs of the Indian market. 

The success of this potential merger will depend on careful implementation, strategic vision, and complementary reforms in areas such as foreign investment and privatization. If executed effectively, this consolidation could mark a turning point for public sector participation in India’s insurance industry, potentially creating a stronger entity better equipped to compete while supporting the national objective of increasing insurance penetration. 

As the government progresses with its assessment in the coming months, stakeholders across the insurance ecosystem – including customers, employees, distribution partners, and investors – will be closely watching developments that could reshape the competitive landscape of India’s general insurance market for decades to come. The decisions made today will fundamentally determine whether the sector can overcome its challenges and fully capitalize on the substantial growth opportunities that lie ahead.