The Hindu Business Line : Deregulation hits non-life insurers’ premium accretions in Q1

Bangalore, Aug. 3 Deregulation has begun pinching the country’s non-life insurers with premium accretions slowing down to slightly over 12 per cent in the first quarter of the current financial year, almost 50 per cent down from last year.

Sources said that the growth slowdown was entirely on account of a fall in tariffs after migration to a market determined tariff from this calendar year onwards.

Gross premiums in Q1 were Rs 7,428.46 crore, up from Rs 6,630.54 crore last year. During the last financial year, the year-on-year growth in premium accretion was 24 per cent, which was inclusive of both the public and private sectors.

The hit in fact was taken by the public sector, though they have managed to retain their pre-eminent position in the domestic risk markets.

PSU insurers’ premium accretion grew only by 4.6 per cent to Rs 4,535.91crore this fiscal against Rs 4,336.8 crore last fiscal.

Private sector insurers during the same period saw growth slowdown to 26 per cent to Rs 2,892.55 crore. Last year, they grew by 60 per cent.

Higher market share

The growth slowdown notwithstanding, private sector insurers improved their market share to 39 per cent in the first quarter of this fiscal up from 35 per cent at the end of the last financial year. The increase was mostly on account of increased coverage. For instance, private sector insurers like ICICI Lombard are focused mostly on the retail sector for sustaining growth, especially householders’ coverage. These covers have low claims ratio and consequently translate into underwriting profits. In fact, these are the low tariffs that have attracted customers.

The migration to a market pricing regime have resulted in tariff drops of at least 40 per cent on fire, engineering and property covers as insurers offered a slew of discounts for all policies to increase/defend market shares.

In fact, insurers found ways for circumventing the regulator’s floor of 25 per cent discounting to increase market shares in the first quarter. But next month the discounting is likely to escalate further since the Insurance Regulatory and Development Authority removes the floor of 25 per cent as well.

Cos under pressure

The Optima Risk and Insurance Management Chief Executive Officer, Mr Rahul Agarwal, said: “Companies’ toplines will come under pressure, as tariffs shrink.”

Yet despite the large discounting, the reinsurance rates plus minimum ceding commissions are functioning as floor rates, industry sources said.

So reinsurance tariffs have not been hit, but tariffs are likely to be permitted to sink further, as it would adversely impact the commissions.

However, the sources said, despite the reduced growth rate, insurance coverage has actually increased.

This is particularly on account of the industrial growth. But the increased coverage has resulted in higher liabilities at very low premiums, implying that underwriting profits are under pressure.

As a result, they said new foreign entries into the domestic general insurance sector were on hold, at least till such time domestic tariffs stabilise.

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