The Hindu Business Line : Premium accretions of non-life insurers to top Rs 15,000 cr

Already during the first eight months (April to November) of the current year, premium accretions have crossed the Rs 10,000-crore mark. This is the first time that this threshold is being breached by non-life insurers.

Sources said that this was in view of the enhanced growth rate projected for the country's gross domestic product estimated at 7 per cent. Insurance premiums are highly sensitive to GDP growth, with the elasticity being anywhere between 3 and 4. This implies that every 1 per cent GDP growth translates in to a 3-4 per cent non-life insurance premium growth.

Accordingly, the combined premium income growth of all the companies in the country are expected to be over 20 per cent. The growth, has, so far been led by the four public sector companies and this trend was unlikely to change, sources said. In fact, companies such as Reliance, who have set up their own general insurance companies, have preferred the public sector to the private sector. Reliance has placed its business with New India Assurance Company and National Insurance Company. This trend, the sources said would not change in view of the high capitalisation of public sector companies.

Already during the first eight months, public sector insurers have shown premium accretions of Rs 8,973 crore. The private sector companies have collected premiums of slightly under Rs 1,500 crore .

The public sector was also benefiting from the new business, sources said. The business accruing to the public sector includes some of the large power utility business. Currently, only the central public sector companies were taking mega risk covers, on the insistence of multilateral institutions and project lenders such as banks.

But other public sector enterprises were also beginning to take risk cover. This was in view of the changes in budgetary funding. In the past, all losses due to damage and accidents were underwritten by the general budget.

Public sector enterprises are increasingly being pushed to commercial funding and among the covenants for such funding was insurance cover.

Besides, premium collections have improved partly to due to changes in premium accretions, sources said. The trend was that most large companies were sourcing risk cover on a reinstatement value basis instead of the market value basis.

Further, the strong growth in the automobile sector has also translated into increased premium accretions for all the insurance companies.

However, during the same period, the industry sources said that claims in the automobile sector have also been brought under greater control. Though the automobile sector continued to show underwriting losses, there was nevertheless a big drop in the claims ratios across the sector. No numbers are being mentioned, but third party claims in the past have been in excess of 150 per cent. Insurers now say that this year it was likely to be lower.

But the underwriting business itself is expected to come into the black for all the insurers, though, the profitable segments such as fire, engineering and marine would be cross-subsidising the auto sector. "Once deregulation is completed, bleeding by auto covers will stop," the sources added.

The high accretion is, however, not unalloyed good news for the sector. For most of them this would mean an increase in investible funds.

The enhanced investible corpus, the sources said, would likely bring further pressure on the yield on investments currently in the region of about 7 per cent. Insurers have accordingly been demanding a change in the investment norms; this has not been conceded by the insurance regulator so far.