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Having witnessed a steep decline in premium rates in a highly competitive environment after the detariffing of rates in 2007, the general insurance companies are now looking at arresting the exorbitant discounts in rates.
The year 2009, industry experts say, had marked the beginning of a certain degree of stabilisation in general insurance premium rates.
After a period of hefty discounts in rates, the policy holders, particularly in the fire, marine, engineering and health policies, may look ahead to some amount of hardening of rates in the years to come.
Price war
In 2007, the Insurance Regulatory and Development Authority of India had relaxed the tariff structure on fire, marine and engineering policies to allow the market determine its optimum rate of premium. This had led to fierce price war among the insurance players, resulting in slashing of rates by 50 to 90 per cent in different policies. This had led to mounting underwriting losses for the companies.
This year the investment income of public sector players saw a reduction of about 28 per cent to Rs 4,480 crore. The overall industry underwriting losses increased to Rs 4,323 crore from Rs 3,900 crore last year.
“The trend of further lowering of premium rates has been arrested in 2009 and we may see certain degrees of firming of the rates now,” Mr N.S.R.C. Prasad, the Chairman and Managing Director of National Insurance Company (NIC), said. Premium rates in fire, marine and engineering policies may firm up by five to ten per cent next year, a senior NIC officer said. These three categories of policies constitute 20 per cent of the total portfolio of the industry.
Gradual happening
“The stabilisation in premium rates is happening gradually,” Mr Rohan Sachdev, Partner, Financial Services, Ernst and Young, said. “Fire and engineering lines have seen premium correction of close to 60-70 per cent, whereas motor has witnessed a decrease in rates close to 30-40 per cent since de-tariffication. However, this is not sustainable. Most companies are now looking at sensible pricing over the next 6-12 months. Rates have already begun to harden in products such as Group Health,” he added.
The growing underwriting losses in third party motor insurance were a major cause of concern for the insurers this year, he pointed out. Third party motor business accounts for nearly a third of the industry's total underwriting loss, he said, adding that the claims ratio in the segment in 2009 was over 200 per cent. The segment might witness some hardening of rates soon, he said. The rates of own damage motor insurance policies, however, continued to decline in 2009.
In the group health insurance segment, the loss ratios have improved in 2009 to 100-110 per cent from 120-140 per cent a couple of years ago. This happened due to hardening of rates, Mr Sachdev said. The claims ratio in individual health policies is now about 70 to 80 per cent. Some private insurance companies (like Bajaj Allianz) also launched in-house third party administrator companies, which led to improvement in their claims ratio to the extent of 30 per cent, he added.
The overall claims ratio for the private sector players has increased to 77 per cent in FY 09 from 72 per cent last year. This is largely driven by a rise in fire claims as well as miscellaneous products.
“Motor and health segments are going to be the driving forces in general insurance business in the years to come,” Mr Sachdev said. Motor and health policies contribute respectively about 40 per cent and 22 per cent to the total premiums collected by a company. The contribution of health to the total portfolio may increase to 30 per cent in two to three years, he added.
This year, the private players were hit more by the price undercutting. During April to November, the growth of private players slipped to 11.02 per cent, from 18.34 per cent during the same period last year. The four public sector insurance companies together clocked 11.05 per cent growth in Gross Direct Premium Income as against about 6 per cent in the year ago period. The public sector companies also maintained a market share of about 57 per cent in 2009.
However, the entry of the State Bank of India next year into the general insurance space, in tie up with the Insurance Australia Group, is expected to create a considerable impact in the industry, Mr Sachdev said.
“This year we shifted our business strategies and emphasised more on risk based pricing, claim servicing, product innovations and strengthening of delivery mechanisms,” Mr Bhargav Dasgupta, MD and CEO of ICICI Lombard General Insurance, said. The company attempted to strike a balance between its topline and bottomline of business and had also looked at managing expense ratios more effectively, he added.
Low penetration
The penetration of general insurance industry, however, continued to be substantially low in 2009. The penetration level stood at 0.63 per cent during the year as against 0.6 per cent in 2007. The penetration of the sector in 2003-04 was 0.67 per cent.
The penetration of the industry is now 4.6 per cent in the US, 2.9 per cent in the UK, 1.6 per cent in Brazil and one per cent in China and Mexico.
The per capita general insurance premium expenditure in India is currently $6 as compared with $2,200 in the US, $1,300 in the UK and $34 in China.
