A wave of consolidation seems to be underway in insurance with HDFC Standard Life and Max Life engaging in merger talks and HDFC Ergo initiating the process of acquiring L&T General Insurance. Should policy holders be concerned? Not really.
The sector is tightly regulated by the Insurance Regulatory and Development Authority (Irda), which ensures that the rights of the policyholders are protected if a company exits or is acquired.
Under the Protection of Policy holders Interests rules, the regulator can intervene and take over management if it feels the need to do so.
Irda ensures that the acquirer honours renewals by customers with full benefits. So there’s little or no chance of claims being dishonoured in such instances.
The solvency margin in life insurance is 150%, which is more than that prescribed in most developed countries.
Auto, health and personal cover policyholders are better placed when it comes to dealing with an insurance provider being merged or acquired. Since general insurance contracts are annual, switching to another provider is easier, unlike life insurance.
HDFC Ergo is in the process of buying L&T Insurance for `551 crore and will subsequently absorb the insurer. L&T Insurance, started in 2010, is a wholly-owned subsidiary of Larsen & Toubro Ltd.
Policyholders will continue to interact with the same insurer and nothing changes for them,” said Ritesh Kumar, CEO of HDFC Ergo.
The merger process will take one to two years to complete subsequent to the high court and regulatory approvals.
Although pricing, policy and claim settlements can get affected with a change of ownership, insurers generally don’t change policy terms or pricing. But if this does happen, policyholders can opt out and switch to a new company.
Health insurance is portable, allowing policyholders to switch seamlessly from one provider to another.
A policyholder may shift based on reasons like price, product, customer service, said an executive at a general insurance company.
But if any product is discontinued, there is a defined withdrawal process laid down by the regulator, which gives the policyholder enough time to switch insurers or schemes.
Curated from On Irda’s watch, you have little to worry from M&As.