The Hindu Business Line : IRDA fiat on discounts irks PSU insurers

The interventions came in the form of the Insurance Regulatory and Development Authority's (IRDA) fiat prescribing the maximum level of discounts that insurers could offer. The regulator has prescribed, "Premiums cannot be less than 25 per cent of the erstwhile base tariff." The sources said this implied that the regulator would allow for a tariff drop of only 25 per cent over the tariffs that each of the insurers had filed with the regulator on their respective products.

This directive, highly placed sources said, has restricted competition and comes at a time when the PSU insurers had prepared for the free pricing environment. "Globally, interventions have been to fix ceilings, and not floors." The sources said the IRDA directive was issued after two rounds of meetings with the chief executives of all the 12 non-life insurance companies last week in the wake of their complaints of "market distortions" by PSUs. The complaints came after the discounts offered by the PSUs since the commencement of free pricing regime from January this year.

PSU insurers — New India Assurance Company Ltd, United India Insurance Company Ltd, Oriental Insurance Company Ltd and the National Insurance Company Ltd — brought renewal premiums down by at least 40 per cent in an aggressive pitch to recover market share lost to the private sector. The discounting was particularly intense in fire and engineering business, where the claims ratios are less than 50 per cent.

Sources said that since March-end 2006, PSUs have actually conceded market share to the private sector.

Till March last year, the gross premium accretions of the 8 private sector companies were Rs 5,427 crore. The PSU insurers' figures for the same period were Rs 1,4951.74 crore. The cumulative figures till January end this year were Rs 7,329.23 crore and Rs 1,3445.94 crore respectively for the private and public sectors, indicating a loss of market share.

Given this situation, the sources said that the PSU insurers took advantage of the free pricing regime and rationalised some of the tariffs. The rationalisation implied that some of the liability products (medical & marine) would be priced higher and fire & engineering tariffs dropped.

Private sector's tariff discounting was largely driven by their ability to obtain reinsurance support. Reinsurers have already conveyed a drastic reduction in ceding commissions to less than 10 per cent from 40 per cent.

More Stories on : General Insurance | Regulatory Bodies & Rulings

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
ICICI Bank may sell entire stake in NCDEX

Areva offers more than Suzlon for German turbine co

Hutchison offers $415 m to Essar as `sign-on bonus'

Vodafone's Hutch deal in order: Kamal Nath

Agri Ministry identifies 80 products for lower tariff cut

Carriers want to leave domestic flyers high, not dry

Insurance salary hikes highest in 2006: Report

Trauma at Nandigram

HPCL to track LPG supply using radio frequency identification

GAIL, Reliance sign pact for cooperation in gas sector

Tax revenues of VAT States rise 23.41% in April-Jan

Cotton economy reviving on output growth, demand

Maruti hikes prices across all models

Edible oil imports decline to 9-year low in February

IRDA fiat on discounts irks PSU insurers

Participatory Notes — When will we cleanse the system?