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General insurers paying out Rs 120 as claim for every Rs 100 collected, premiums set to go up

Health, fire insurance premiums may rise 5-10% from next fiscal. Loss ratios of general insurers set to rise from Q2 as claims spike. Health insurance sees 1.25 lakh claims worth Rs 1,700 crore being filed so far. As factories reopen, incidents of short-circuits increase.

August 24, 2020 / 10:01 AM IST

The loss ratio of general insurance companies is likely to rise from Q2FY21 as claims from health, fire and motor segments are seeing an increase.

Sources told Moneycontrol that compared to the 102-105 percent loss ratio, prevalent till the end of the June quarter, by the end of September quarter. loss ratio will see a rise to 120 percent.

This means that for every Rs 100 collected as premium, Rs 120 will be paid out as insurance claims.

If the loss ratios rise, underwriting profits of non-life insurers will be hit. This will affect bottom line or profitability in Q2. For customers, this will mean a premium increase from FY22. According to experts, the health and fire insurance segments may see a 5-10 percent rise in premiums.

Also Read: Hospitals and insurers don’t see eye-to-eye on COVID-19 treatment costs

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Rise in combined ratio

In Q1, the combined ratio stood at 100 percent or below for the industry. For instance, ICICI Lombard had a combined ratio of 100 percent and Bajaj Allianz General had 90.4 percent in Q1FY21.

The combined ratio is the incurred losses and expenses versus the earned premium. This is used to measure the profitability of a non-life insurer. A ratio below 100 percent indicates that the insurer is posting underwriting profit.

“In the initial months of the lockdown, policyholders were busy handling remote working and circumstances related to travelling back home. But from mid-July onwards, as things settled, these individuals started filing for claims related to road and fire accidents, and, of course, Coronavirus-related hospitalisation," said the head of claims at a mid-size private insurer.

As far as customers are concerned, the loss-ratio increase will attract a higher premium from the next financial year onwards.

Increase in health and motor claims

The Coronavirus outbreak has led to 1,25,000 health insurance claims being filed so far. The claimed amount is close to Rs 1,700 crore. From July onwards, with the rise in elective surgeries that were postponed, general insurers are expecting a spike in claims from health, leading to loss ratios above 110 percent.

“While COVID-19 claims are not as high as anticipated, it is adding to the total loss ratios. Along with regular hospitalisation claims, losses will exceed 110 percent,” said the head of claims at a stand-alone health insurer.

In the motor insurance segment, accident claims have started to come in. Insurers said that while April was a total-lockdown situation, individuals were travelling back home in May and part of June.

Also Read:  Reporter's Take | Does your insurance cover coronavirus?

In this segment, while the own-damage or vehicle-repair claims have remained under control, third-party insurance claims are being filed. Third-party claims are for road accidents caused by insured vehicles leading to loss of life or serious injuries.

Fire accidents as offices, shops reopen

With several offices, shops and factories reopening from June, the three-month shutdown has damaged machinery and plant parts. Added to this is the heavy rainfall across the country. It has increased the risk of short-circuits in closed units.

“Standard operating protocols were not followed by owners of smaller manufacturing units, shops and godowns. This is leading to fire accidents being reported to insurance companies,” said the head of commercial insurance at a state-owned insurer.

Also Read: Brace for insurance premium hikes in post COVID-19 era

Close to 100 major and minor fire insurance claims have been reported so far, with claims exceeding Rs 2 crore. Going forward, insurers are planning a premium increase from FY22 to compensate for the claim losses.

“Fire and health insurance will definitely see a 5-10 percent price increase next year,” said the underwriting head of a non-life insurer.
M Saraswathy
first published: Aug 24, 2020 10:01 am

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