General insurance premia may not tumble
Expectations of another 50-60% decline in premiums after the general insurance industry was completely detariffed are turning out to be misplaced. The selling mantra
By Debjoy Sengupta, TNN |
KOLKATA: Expectations of another 50-60% decline in premiums after the general insurance industry was completely detariffed are turning out to be misplaced. Premia for fire, engineering and motor — the segments that were completely detariffed — are, in fact, stabilising.
At least, this is what transpired at the first meeting between the general insurers, the regulator and the General Insurance Council (GIC) that was called to take stock of the developments in the industry after it was completely detariffed after January 1, 2008. Incidentally, Irda has asked the GIC to play the role of a market watchdog and the Kolkata meeting was the first of a series that will be held fortnightly in all cities.
“The expectation that rates would nosedive seems to be misplaced. The market has, in fact, started to stabilise after it was completely detariffed on January 1, 2008. Expectations that rates would dive and that insurers would offer huge discounts in a bid to grab marketshare after deregulation is effected has actually not happened.
Additionally, there are no supply-side constraints which means the competition is healthy,” said KN Bhandari, secretary general, GIC.
“In 2007, the industry already witnessed discounts of about 50% on an average in fire, engineering and motor own damage segments. This time rates have declined marginally and there are no further downslides. There could, however, be few stray cases where rates have substantially declined, but this is not the trend,” he said.
“Insurers’ need to cover their basic cost of claims and ensure their ability to pay claims isn’t eroded. Irda and the council are in the job of ensuring this. We have been assigned the job of a market watchdog and will keep close tabs on market developments. Irda is also happy with the developments in the market after it was detariffed on January 1, 2008,” he added.
New India Assurance CMD B Chakrabarty told ET: “Free pricing is a responsibility and executives are also responsible to the board so combined ratio of loss is not greater than 100% for any company. Therefore, one has to do underwriting on risk-based pricing to take care of the break-even issue for every risk.
Better risks and good management will get better rates vis-a-vis earlier tariff. If we keep on offering reduced rates, it will show on the insurers’ balance sheets. Additionally, reinsurers may not be ready to cover risks if huge discounts are offered.”
At least, this is what transpired at the first meeting between the general insurers, the regulator and the General Insurance Council (GIC) that was called to take stock of the developments in the industry after it was completely detariffed after January 1, 2008. Incidentally, Irda has asked the GIC to play the role of a market watchdog and the Kolkata meeting was the first of a series that will be held fortnightly in all cities.
“The expectation that rates would nosedive seems to be misplaced. The market has, in fact, started to stabilise after it was completely detariffed on January 1, 2008. Expectations that rates would dive and that insurers would offer huge discounts in a bid to grab marketshare after deregulation is effected has actually not happened.
Additionally, there are no supply-side constraints which means the competition is healthy,” said KN Bhandari, secretary general, GIC.
“In 2007, the industry already witnessed discounts of about 50% on an average in fire, engineering and motor own damage segments. This time rates have declined marginally and there are no further downslides. There could, however, be few stray cases where rates have substantially declined, but this is not the trend,” he said.
“Insurers’ need to cover their basic cost of claims and ensure their ability to pay claims isn’t eroded. Irda and the council are in the job of ensuring this. We have been assigned the job of a market watchdog and will keep close tabs on market developments. Irda is also happy with the developments in the market after it was detariffed on January 1, 2008,” he added.
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New India Assurance CMD B Chakrabarty told ET: “Free pricing is a responsibility and executives are also responsible to the board so combined ratio of loss is not greater than 100% for any company. Therefore, one has to do underwriting on risk-based pricing to take care of the break-even issue for every risk.
Better risks and good management will get better rates vis-a-vis earlier tariff. If we keep on offering reduced rates, it will show on the insurers’ balance sheets. Additionally, reinsurers may not be ready to cover risks if huge discounts are offered.”
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