The New Year is likely to make your wallets lighter since there is likely to be a higher outgo on your general insurance premium. Sources told Moneycontrol that the insurance premiums are set to rise by 10-15 percent in 2020.
This is on account of a rise in reinsurance rates, which insurance companies have to pay to secure a cover. When insurance companies pay a higher amount to get the same risk covered, this excess is passed on to customers in the form of a premium increase. Renewals of reinsurance contracts begin from January 1.
Considering the risks involved in the business, almost all general polices are reinsured by insurance companies. In other words, they buy a cover for themselves in case the insurers themselves are hit with a large claim.
“There has been a consistent rise in incidences of claims. This has led to both Indian and global reinsurers taking a cautious stance as far as providing covers are concerned. They have already indicated that reinsurance rates will go up,” said the underwriting head at a large general insurance company.
Insurance pricing is impacted by both domestic and international factors. This is because reinsurers, which offer the risk cover to the insurance companies, operate both domestically and internationally. When they are presented with higher claims, their risk appetite goes down and premiums increase to better prepare for the future.
Sources said premiums in segments like liability insurance, fire insurance, motor insurance as well as group health covers will take a 10-15 percent hit in the form of an increase. While Indian reinsurer GIC Re undertook some steps to usher discipline in segments like fire insurance, companies said some insurers continue to indulge in discounting practices.
“A group of fire insurance policies for certain types of buildings/occupancies are being offered at a discount despite having a history and clear data of higher claims previously. This is affecting balance sheets since clients tend to choose those insurers whose premiums are lower,” said the chief operating officer at a mid-size private insurer.
Sometimes a higher claim in one segment may end up increasing the overall claims losses for an insurance company. In FY20, crop insurance losses have been higher due to the incidents of floods affecting production. This is also a factor leading to a price increase.
Among retail segments, it is likely that the impact in the motor insurance segment could be higher. This is because the mandatory third-party insurance premium (fixed by IRDAI) may see another partial increase from April 2020 onwards. Due to this, rates for comprehensive motor policies may go up.
A few years ago, in a bid to retain corporate clients, several insurers would indulge in discounting practices to retain corporate clients. While this practice still exists, discounts have reduced since the listing of insurers has ushered transparency in the sector.
Underwriting profit and combined ratio are now two closely watched metrics by shareholders of insurance companies. Discounting loss-making businesses impacts the bottomline and hence this is being passed on in the form of higher premiums.
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