Get ready to pay more for insurance cover

NEW DELHI: The finance ministry has told the four state-owned general insurance firms to restructure their fire, health and motor businesses to cut losses that run into hundreds of crores.

It wants better management of claims, reduction in expenses and end to the pricing war that have resulted in a combined loss of nearly Rs 1,500 crore in the last financial year on group health insurance alone.

"We want insurers to come with realistic pricing for all products and not to take on loss-making portfolios in order to gain business share," said a finance ministry official who did not want to be identified.

The finance ministry has sent a detailed advisory to the four insurers (New India Assurance, Oriental Insurance, United India Insurance and National Insurance) asking them to cut losses on third party motor insurance, group health policies and fire insurance.

The government has from April 1 this year discontinued the third party motor pool, a mechanism to distribute losses among all the insurance companies, and is worried that most of this loss-making business could come to the state-run insurers.

"The PSUs are advised to be more cautious and prudent in underwriting motor business by devising a proper underwriting/marketing strategy to minimise TP (third party losses)," a finance ministry missive to the insurers stated.

The restructuring could mean higher premiums for buyers.

"This may lead to increase in premiums as insurers would now be forced to keep their claim ratio to the minimum," said Vivek Gupta, partner, BMR Advisors.

The state-owned firms are confident of keeping a lid on prices.

"Any owner would like its companies to achieve 100% combined ratio and not survive only on investment income. Companies are already working on the same, the ministry's guidelines are a step in right effort," Oriental Insurance Chairman RK Kaul said.

The finance ministry is concerned that while private players have been exiting loss-making portfolios, state insurers have been taking on loss-making businesses, such as group health insurance.

In 2011-12, these companies had a combined ratio of 130%-140% on their health portfolio, or for every 100 premium they were spending Rs 130- 140 in claims, management expenses, broker/agent commissions and third-party administrator commissions. This means a loss of 30- 40 on every 100 of premium.

In the case of group insurance policies, which account for 50% of the total health insurance business, the combined ratio is over 150%.

The ministry has asked state-owned insurance firms not to give any discount on standalone group health insurance policies where combined ratio is more than 100%.

PSUs have been told not to renew the policies if the revised premium does not bring down the combined ratio to less than 95%. Further, in case of standalone group health insurance brokerage has been restricted to a maximum of 5%.

In the case of fire insurance, PSUs have been told that no insurance of more than Rs 100 crore can be shifted from one PSU to another, except with the order of the CMD of the company issuing such a policy.