The Hindu Business Line : Current tariffs for engg, fire cover to continue

Sources said that the Insurance Regulatory and Development Authority (IRDA) has conveyed to non-life insurers to continue with the existing tariffs on both fire and engineering.

Currently both these tariffs are subjected to a floor of 52.5 per cent, implying that this was the maximum discounts that insurers are allowed to offer.

Under the original road map, this floor was expected to have been lifted from November1.

The sources said that so far only the public sector non life insurers and a couple of private sector insurers had filed their tariffs with the regulator. In fact, they had prepared to offer discounts of at least 10 per cent more than the floor levels effective from this month onwards.

The sources said the floor was not removed, since quite a number of private sector players were yet to file their tariffs.

Undercutting seen

Removal of the floor rates would have resulted in a blood bath with non-life insurers undercutting tariffs. This would be reminiscent of the early 90s when marine insurance was completely deregulated when tariffs had bottomed out.

Most of the insurers were preparing for reduced top lines with the removal of the floor in both engineering and fire. Fire and engineering comprise the bulk of the non-motor business.

Both sectors are keenly sought after, in view of the low claims and the consequent high profits.

Pressure on income

The sources said that among the factors behind the failure of private insurers to file tariffs was the fear of reduced ceding commission.

Ceding commissions, the difference between the premium accepted by the primary insurer and the premium paid out to the reinsurers, were already under severe pressure. It is now barely 15 per cent.

The pressure on commissions was also partly on account of investment losses by global reinsurers following the US sub-prime meltdown.

“Any hardening of rates will become evident when negotiations start for the next year’s treaty,” the sources said.

From January onwards, policy renewals are expected to take place for some of the corporate accounts on fire and engineering.

But major global reinsurers providing capacity support to domestic insurers had cautioned against any steep reduction in tariffs early this year.

As a result, there are fears that the existing number of lines available to primary insurers would be curtailed under the treaty route and substituted with Facultative insurance business.