Fire insurance premiums could surge 60% in 2025

The primary driver behind the price hike is the pressure from reinsurers, who have raised alarms over rising claims due to unsustainable loss ratios, according to an insurer of a mid-sized company.

"One factor why companies might have gone aggressive with discounts is competitive pressure, which can lead to price wars. In a market where several insurers are vying for the same customers, one company's decision to lower prices can prompt others to follow suit to avoid losing ground. This can especially happen in segments like property or auto or even health insurance where price is a significant differentiator," he added.

The rise in fire insurance premiums is positive for the insurance companies, and in the long run, clients as well, as this rationalisation of property insurance premiums was much needed for the insurance sector, said Sandeep Dadia, CEO of Lockton, an insurance brokerage firm.

Last year, premiums had fallen so low that profitability became a significant concern, said Dadia. "If insurers are not profitable, how will they sustained to pay claims?" he further added.

Fire insurance premiums are determined by the total risk exposure rather than the actual claim history. Even if there have not been claims in the last five years, if the exposure risk remains high, the premiums cannot be low, he explained.

The market was de-tariffed long ago, and rightly so, he said, adding that, "However, in the pursuit of competition, companies reduced prices to such an extent that profitability became a concern. The risk was substantial, which necessitated this price adjustment. Insurers would have found it difficult to find reinsurance support at this price."

Around 10 percent of all general insurance premiums are derived from property insurance. "Although this percentage might appear modest, in terms of risk exposure, it represents the highest risk in the industry," said Dadia.

"We were fearing the worst last year," said the analyst. "The general insurance companies got very lucky," he said, adding, had there been a significant disaster in 2024, "two to three companies would have been wiped out."

Moreover, the Insurance Regulatory and Development Authority of India (IRDAI) had previously mandated insurers to comply with Expense of Management (EOM) norms for business renewals. However, "none of the companies were in compliance," said the analyst.

The EOM refers to the total operating costs incurred by insurance companies in managing their business, excluding the cost of claims and benefits paid out to policyholders. These expenses are regulated by the IRDAI to ensure that insurance companies operate efficiently and do not excessively burden policyholders with high management costs.

IRDAI did not reply to the queries from Moneycontrol.

The recent pricing shift reflected a more rational approach, with insurers prioritising stability over aggressive market share gains, an analyst said, adding that while the new rates aim to bring sustainability, the IIB-recommended rates must be revised annually to reflect evolving market dynamics.

"De-tariffing requires discipline, and insurers must strike a balance between profitability and competitive pricing," he added.