The Insurance Regulatory and Development Authority of India (IRDA) will now seek segment-wise balance sheets from insurance companies to ensure that they make adequate provisions for claims as well as not offer unreasonable pricing in some segments.
People in the know have said that especially in segments like group health and fire where insurers have been found to be giving discounts even if the claims are high in order to retain the client’s business. In this process, some insurers compete aggressively on the premiums leading to heavy underwriting losses.
“When insurers bring out segment-wise results of various segments, it will be clear as to how much underwriting loss they are making. On the basis of this, the insurers can be questioned on their business strategies,” an official said.
The general insurance industry is making underwriting losses which means that the claims that they pay on a yearly basis is more than the premiums that they collect. In segments like group health, fire and engineering, and motor third party, underwriting loss for the public sector and private insurers are high.
According to data from IRDA, public sector insurers had Rs 10,862 crore of underwriting loss for 2015-16, compared to Rs 7,169 crore in 2014-15. Similarly, private insurers had Rs 3684 crore of underwriting loss in 2015-16 compared to Rs 2,432 crore in 2014-15. Here, the Chennai flood claims, cost of acquisition as well as intense competition led to higher losses.
With this, combined ratios (that includes claims, commissions and management expenses) also rose to 117.6 percent in FY16 from 114.2 percent in the previous financial year. This means that for every Rs 100 paid as premium, Rs 118 is paid as premium.
At the time of the renewal of a corporate policy, insurers offer reduced premiums so that the client is incentivised to stay insured with that particular company. While IRDA has discouraged the insurers from indulging in such practices, the incidents continue. A senior industry official said that while companies were asked to look into the burning cost of each policy before deciding the premium, close competition has led them to many players abandoning these strategies.
Many private sector insurers have also refrained from either offering better rates to clients or exited business so that their bottom-line does not get impacted at the cost of the top-line. Sources said that those companies offering discounts will also be required to maintain a higher level of capital.In the public sector general insurance space where companies are in preparation for listing on the stock exchanges, the cleaning up of the books has begun.