A popular definition of insanity is “doing the same thing over and over and expecting different results”. This is probably the first reaction of anybody reading the news item in
a financial paper recently. An infusion of nearly ₹30,000 crore is necessitated to cover the solvency margin shortfall in these companies. This shortfall is the result of losses made by the three companies in FY25-26. The word ‘rider’ in the news item implies that while infusing the funds, the government hopes that these companies will eventually turn profitable by adopting the strategic changes prescribed as riders. The subtitle also attempts to shed some light on these riders, calling for “…underwriting overhaul, performance-linked talent management”.
Before drafting this article, the author also wondered if pointing out the obvious over and over would lead to a different outcome. And the desired outcome here is the government accepting the futility of pumping public money into any business that has no likelihood of giving a decent return on investment in the given circumstances. This can only happen if the public awareness of this issue forces the government to take notice. Unfortunately, to hope for any kind of public consultation before spending large sums of public money is utopian at this stage of our governance system. General insurance is a small example; the elephant in the room is the absence of any public consultation mechanism before committing funds for anything - be it these grandiose schemes or loan waivers!
The fundamental issue here is the deployment of public funds – collected from the taxpayer – into a business idea which has been tested repeatedly and has failed to yield different results. This leads to a subset of the larger question: has the government any business to be in the business of non-life insurance? This issue has been examined over the years and a balanced answer depends on several factors related to the economy and society. If the business provides an essential service which private investors are unwilling to provide, then the answer is yes. Has this been the case for the government to get into the insurance business?
The reason behind the government taking over the life insurance business in 1956 was the scandalous way in which the life insurance industry was being run. Nationalisation of non-life business in 1971 was done mainly to reinforce the ‘socialist’ credentials of the government of the day, but it was also partly driven by the rampant malpractices and mismanagement prevalent in a large number of private insurance companies.
Essentially, various announcements by the government regarding public sector general insurance companies go to show that while the government is aware of the challenges, it finds it difficult to come to grips with the obvious solution.
The economic logic is simple; if there is no likelihood of the public sector insurance businesses ever providing a return on investment to the government, why keep investing public funds in businesses that serve no social or strategic purpose?
To quote from the news article, the government has so far invested ₹17,450 crore into the three insurers between FY20 and FY22 to strengthen their financial position and solvency. Combined losses (that is, losses after counting the investment income) at public-sector general insurers were ₹29,070.57 crore in FY25-26.
ICRA estimates that, based on current performance and solvency trends, the three insurers could require about ₹39,000 crore by March 2027 to meet the regulatory solvency requirement. The Reserve Bank of India, in its June 2026 edition of the Financial Stability Report, described the deterioration at the three insurers as a “direct financial stability concern”.
Let us now look at the ‘riders’ on which the government seems to have pinned its hopes of a return to profitability. The strategy pushes for an overhaul of underwriting, product innovation and performance-linked talent management. Anyone who has ever worked in the public sector insurance companies (this author has) or has seen its working closely would find it unlikely that such strategies can be executed given two major systemic constraints.
The first constraint is the bureaucratic structure and practices ingrained in the public sector companies and secondly, the questionable business practices adopted by private sector companies. The extent of these predatory competitive practices of private sector insurers becomes stark in a news item relating to the 24 September 2026 stock market fall. It says that heavy selling in financial stocks was triggered by the insurance regulatory and development authority of India (IRDAI) proposing strict caps on commissions and loan-insurance bundling, wiping out over ₹1 lakh crore in market capitalisation – both banks and insurance companies.
The overarching assumption or justification is that underwriting overhaul and performance-linked talent management will deliver profitability. It therefore becomes imperative to consider if these strategies can really be executed. After all, just as hope is a poor substitute for strategy, it is also a poor substitute for execution.
Overhauling underwriting: it is indeed imperative but impossible to implement in the current competitive milieu. Good underwriting means choosing the risks carefully and charging the right price. More than two-thirds of the general insurance business in India is motor and health – 72% of gross direct premium income. Both health and motor insurance are offered by a large number of private sector companies, generally at predatory prices and the government companies have no option but to follow. Why? At least one of the three companies named in the article has to keep writing motor and health business to maintain the cash flow to cover employee salaries.
Both motor and health are loss-making businesses for the industry, running at a loss ratio between 126% and 130%, which means insurers lose 26 paise to 30 paise on every rupee of premium written. Health insurance loss ratios of most general insurance companies (excluding the specialised health insurance companies) exceed 100%, more so in the public sector, as these companies have to write group health insurance business to secure the other commercial non-life insurance business of corporate clients. Therefore, it would be a long and painful process for the public sector insurance companies to reduce the motor business dramatically and get out of the group health insurance business. Other classes of business do not provide enough volume for these companies to cover their establishment costs.
The other strategy visualised by the government, product innovation, is easier said than done. Realistically speaking, there is no game-changing product innovation across the non-life industry, either in India or across the world. The general insurance business’ bread and butter comes from covering conventional risks such as fire, marine and motor.
Liability insurance and specialised covers such as directors and officers do not have large enough volume in India. Yes, over the past years cyber insurance has come into vogue as a new product, but its volume does not justify an exclusive focus on it. In other words, there is no great scope for product innovation in the bread-and-butter business of the Indian general insurance industry – motor and health.
The third measure envisaged is performance-linked talent management. How does one define it? Variable compensation? Share options? Accelerated promotions? Hire and fire? It will require a fundamental shift in the mindset of the bureaucracy. Given the behavioural patterns of India’s corporate hierarchy, this is quite likely to be used subjectively and will therefore suffer from credibility issues.
The solution is to either put these companies in run-off, or merge them with the remaining solvent company, but the said company being a listed company, any merger presents a complex set of challenges.
At this stage, it may not be out of place to quote from my article written nearly six years ago (10 July 2020) “…taking into account the factors and forces that hamstring the functioning of the PSU insurers, the hope of return to profitability in the foreseeable future appears to be unrealistic. ….. It will be surprising if a couple of years down the line, the need for further capital infusion does not rear its head again. This is public money and surely the policy makers have better uses for it.”
It is possibly contextual to draw attention to another flashing warning light. IRDA has mandated implementation of Indian Accounting Standards (Ind AS), including Ind AS 117 and Ind AS 109, for all life, general, health and reinsurance companies effective 1 April 2026. This will have a far-reaching impact on the insurance industry and may change the landscape altogether. Any capital infusion, whether in private or public sector companies, will need to take into account the consequences of this move.
(Shrirang V Samant has worked in senior leadership roles in the general insurance industry, both in public and private sectors, in India and abroad. He has been privy to the transition of this industry from public to private sector in the country and was the founding CEO of a multinational insurance joint venture- JV in India.)
