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Last Updated : Oct 10, 2019 03:57 PM IST | Source: Moneycontrol.com

Q2 preview: Drop in auto sales to impact non-life insurers

Since motor is the largest portion of the non-life industry’s premium, a dip in the automobile sales has a direct impact on premium collection

M Saraswathy @maamitalks
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The September quarter (Q2) earnings of general insurance companies is likely to be hit by falling automobile sales. Since motor is the largest portion of non-life industry’s premium, a dip in the automobile sales has a direct impact on premium collection.

In the June quarter as well, a decrease in auto sales had impacted the topline of non-life players. In the April-August period, non-life insurers saw a mere 5.9 percent growth in motor premiums compared to the year-ago period. On an average, motor premiums have been growing by 15-18 percent on a year-on-year basis till September 2018, when the downturn began.

“On one hand there has been a lower-than-expected third-party motor premium hike, on the other there has been a consistent decrease in vehicle sales. This is bound to hit revenue,” said the chief executive of a private general insurer.

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According to SIAM data, the industry produced a total 12.02 million in the April-August period as against 13.69 million vehicles in the year-ago period. This was a YoY fall of 12.25 percent. The sale of passenger vehicles declined 23.54 percent YoY in April-August.

Since third-party motor insurance is mandatory for all vehicles driving on Indian roads, an increase in motor sales automatically results in higher motor insurance policy sales for non-life players. Motor insurance constitutes 37 percent of the total business for general insurers.

Ironically, auto sales were affected from last September due to an apex court order mandating vehicle buyers to buy long-term motor policies. While insurance price rise was not the only factor for a dip in auto sales, it was one of the factors since it led to an increase in vehicle costs.

The Supreme Court had mandated sale of only sell three-year car insurance and five-year two-wheeler insurance for the third-party segment from September 1 onwards. This led to a rise in third-party premiums by 2.86-3.08 times and 2.45-5.61 times for new cars and bikes purchased after this date, respectively.

The Q2 results of insurance companies will begin from next week onwards. Among general insurers, ICICI Lombard General Insurance will declare its results on October 18. New India Assurance, which is also listed, is yet to announce its Q2 result.

ICICI Lombard reported a 7.1 percent year-on-year (YoY) rise in net profit for Q1 FY20 at Rs 309.81 crore. But its Gross Direct Premium Income (GDPI) declined 7.6 percent YoY to Rs 3,487 crore.

 

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First Published on Oct 10, 2019 03:57 pm
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