Regulator warns insurers against deep discounts on fire risk cover

Mumbai: The insurance regulator has warned general insurers against aggressive underpricing in the fire insurance segment after receiving complaints of discounts of up to 99% on large industrial risks, saying such pricing threatens insurers' financial health and underwriting discipline.

The warning comes close on the heels of a sharp slowdown in fire insurance premiums. Industry fire premiums fell in the first quarter of this financial year to ₹8,087 crore from ₹11,206 crore a year ago. The decline came after premiums rose to ₹27,432 crore in 2025-26 from ₹24,188 crore a year earlier, with public sector insurers posting growth of 19.93% and private insurers growing 9.9%.

"The authority has received representations regarding very low rates for certain large fire risks, including discounts of up to 99% from base or benchmark rates, reportedly due to intense competition, business targets, year-end pressure, or demand from clients and intermediaries," the Insurance Regulatory and Development Authority of India (IRDAI) said in a communication to managing directors and chief executive officers of general insurance companies on July 22.


The regulator said pricing for large industrial and commercial fire risks should be based on sound actuarial principles as these are low-frequency but high-severity risks, where a single claim may many times be in multiples of the premium collected.

The move follows months of intense competition in the commercial insurance market. Insurers were slashing premiums to get large corporate accounts, with natural catastrophe covers being discounted by 60-75% and preferred risks by as much as 85-90%, ET had reported earlier.

"This drop in rates has substantially affected the premium collections of even large insurers. The unsustainable premium levels put claims in jeopardy. Many claim settlements are affected and we believe that this trend will only strengthen over time, unless they course correct, after all insurers pay claims from premiums collected," said Irfan Multani, vice president at the Mumbai-based Xperitus Insurance Brokers.

Although fire insurance policies were de-tariffed from April 1, 2024, the regulator said insurers are bound by insurance regulations and their board-approved underwriting and pricing policies, adding that premiums must adequately cover expected claims, reinsurance and acquisition costs, operating expenses, cost of capital and a reasonable margin for uncertainty.

"While the IRDAI, in its advisory note, has highlighted the steep discounts, by mentioning high discounts on base rate, it has not taken cognisance of the fact that insurers are in many cases not charging fire premium at all, besides giving heavy discounts on earthquake and STFI (storm, tempest, flood and inundation) rates, which is a matter of serious concern," said Multani.

Fire insurance has been one of the fastest-growing segments within general insurance, expanding about 13.4% in 2025-26 compared with industry growth of around 8%. The segment, which covers loss or damage from fire and allied perils such as explosions, storms and natural calamities, accounted for about ₹27,500 crore, or 8.2%, of the industry's ₹3.36 lakh crore gross premium pool last fiscal.