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COVID-19 impact: Underwriting losses set to rise in FY22 for general insurers

Health insurance claims have risen due to the COVID-19 second wave, while the motor insurance business has shrunk.

June 09, 2021 / 06:38 PM IST
Representational image. (Image: AP)

Representational image. (Image: AP)

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General insurance companies will see underwriting losses widen in FY22 due to a rise in medical claims following the second wave of COVID-19 infections, coupled with a decline in legacy businesses such as motor insurance, ICRA said in a report.

So far, almost Rs 24,000 crore worth of claims have been paid under medical insurance due to COVID-19-related hospitalisation and associated expenses, according to General Insurance Council data.

According to Sahil Udani, assistant vice president and sector head – financial sector ratings at ICRA, despite the wider underwriting losses, the sector may post a 3 percent-4.5 percent return on equity, largely supported by investment income.

“PSU insurers are expected to report high underwriting losses of Rs 12,400 crore to Rs 13,500 crore,” he said. “This will be driven by the likely high claims ratio on health and motor portfolio.”

An underwriting loss occurs when the claims paid out exceed the premiums collected. General insurers paid out almost 60 percent of 9.8 lakh claims worth Rs 14,000 crore filed for COVID-19 medical expenses in FY21.

Roopam Asthana, CEO of Liberty General Insurance, said the extent of COVID-19 claims is substantially high and that would impact the underwriting performance.

“There could also be natural catastrophe-related losses from the recent cyclones that could have an impact. We are seeing that consumer sentiment is at its lowest. This means that the ability of consumers to purchase assets is going to be muted, leading to price pressures,” Asthana added.

The combined ratio of general insurers rose to 102 percent in FY21 compared with about 96 percent due to the rise in claims. A ratio above 100 percent indicates that insurers are reporting underwriting losses.

Suresh Agarwal, MD & CEO of Kotak Mahindra General Insurance, said that while the pandemic has nudged the health insurance top line at an overall level, there has also been an increase in claims.

“We need to look at the rise in claims cost at an overall portfolio level, rather than policy level. April & May (2021) saw a spike in COVID-related claims and we are maintaining a close watch on our position along with the rest of the industry,” he added.

Another factor causing a rise in underwriting losses is motor insurance, with sales in this segment not having picked up. Motor was traditionally the biggest segment for non-life insurers but COVID-19 related issues led to health overtaking it.

Moneycontrol had reported earlier how health overtook motor as the biggest segment.

ICRA said the share of motor insurance narrowed to 37 percent in FY21 from 46 percent in FY16. The motor business grew 2 percent to Rs 67,800 crore in FY21 due to the nationwide lockdown in 2020 and lower sales of new vehicles.

In motor insurance, Asthana explained that while the premium is the same, input costs (like spare parts) are going up, leading to a rise in claim costs.

However, the vaccination drive is picking up pace and could help mitigate the risk of rising claims.

Shreeraj Deshpande, chief operating officer at Future Generali India Insurance, said the surge in the second wave of COVID-19 would increase underwriting losses in FY22.

“It is very important that vaccinations are carried out on war footing to achieve maximum coverage so that the losses as a result of expected subsequent waves, if any, is considerably reduced,” Deshpande said.

Listed players may see an impact

Listed companies ICICI Lombard and New India Assurance may see wider health segment underwriting losses with the increase in COVID-19 claims, which caused underwriting losses to increase for general insurers in FY21.

ICICI Lombard General Insurance reported an underwriting loss of Rs 91.29 crore in the fourth quarter against a loss of Rs 29.42 crore a year earlier.

Among ICICI Lombard’s business segments, motor, marine and health saw underwriting losses in Q4. The underwriting loss was Rs 207.87 crore in the motor segment, Rs 10.18 crore in marine underwriting, Rs 8.77 crore in health (retail) and Rs 23.4 crore in health (corporate).

For FY21, ICICI Lombard’s underwriting loss widened to Rs 191.94 crore from Rs 105.15 crore a year ago.

“It will be incorrect to generalise the underwriting losses for the industry in FY22. Segments like fire will continue to see low loss rates while health segment losses will rise,” said the head of underwriting at a non-life insurer.

New India Assurance, which is the country’s largest general insurer, reported an underwriting loss of Rs 1,721.26 crore in the fourth quarter of FY21 as against a loss of Rs 1,059.39 crore a year earlier. Health underwriting loss for the quarter was Rs 1,044.7 crore.

For FY21, New India’s underwriting loss was Rs 3,696.44 crore, while the health underwriting loss stood at Rs 2,102.45 crore.

M Saraswathy
M Saraswathy is a business journalist with 10 years of reporting experience. Based in Mumbai, she covers consumer durables, insurance, education and human resources beat for Moneycontrol.
first published: Jun 9, 2021 06:38 pm