The Hindu Business Line : Fall in premium, stock market volatility confront general insurers

“Premiums have fallen due to detariffing and volumes are declining due to the economic slowdown as policy holders want to trim their insurance coverage during the current financial year.”

S. Bridget Leena

Chennai, Dec. 28 The year 2008 will go down as “challenging” and “difficult” for the general insurance industry, which till 2007 saw a steady growth, and most of the eight private players reported profits from the third and fourth year of operations. It is in 2008, that the real impact of detariffing (free pricing) was felt by players as they undercut premiums to gain market share and the stock market turned volatile.

According to Mr Sandeep Bakshi, Managing Director and CEO, ICICI Lombard, “It is a year of great challenge in terms of premiums, choppy equity market and loss ratio.”

Increase in players

In the last couple of years, private players entered life insurance in a big way, resulting in 21 players operating in the segment.

However, not much action was seen in the general insurance side till the tail end of 2007, when Apollo DKV Health Insurance and Future Generali were established.

In 2008 three new private players entered the fray — Universal Sompo General, Shriram General and Bharati Axa General — taking the private players’ strength to 12, apart from the existing four public sectors insurers. Market share in terms of premium garnered by public sector players has seen a fall this year as well. New India Assurance and Oriental Insurance lost about 1.2 per cent while United India Insurance gained marginally. Premiums collected by the insurers reported a 12 per cent growth to Rs 15,604 crore for April to September 2008.

Impact on Profitability

Mr V. Ramasaamy, Chairman and Managing Director, National Insurance Company, said, till September the company made profits on sale of equities but the last three months have been low. “We expect profits to fall by at least 25 per cent during the current financial year.”

Investment income

General insurers report profits from investment income and profits from underwriting insurance policies.

All general insurance players have been reporting profits based on investment income. These profits are earned by insurers from investment income by investing in the stock market, government securities and bonds.

Underwriting profits seem to be eluding general insurance players, both public and private, except Bajaj Allianz General Insurance. Underwriting profits are made by judicial underwriting of insurance risk.

Mr M. Ramadoss, Chairman and Managing Director, Oriental Insurance, said, “We expect investments income to take a hit due to the stock market volatility and have also increased underwriting losses.” Premium growth has fallen to 12 per cent as on September 30, 2008 from 25 per cent last year. Growth during October, November months does not look promising either with the economic slowdown, he said.

Premiums have fallen due to detariffing and volumes are declining due to the economic slowdown as policy holders want to trim their insurance coverage during the current financial year, said Mr Ramadoss.

This year may be a double-whammy in terms of profitability; profits reported by general insurers based on investment income are expected to take a hit this year for the first time. Insurers have been underwriting losses which is also expected to increase.

“It will be difficult to gauge claim ratio for the industry as a whole. We have not seen large claims in property or major catastrophe loss this year, excepting the floods in Chennai,” said Mr T.A. Ramalingam, Head –Underwriting, Bajaj Allianz General.

Terrorism claims

Mr Ramadoss said although Tata AIG General Insurance is the lead insurer of Taj Hotels, the claim losses from the terrorist attacks on Taj Hotels are larger for public sector players than Tata AIG General. Tata AIG General Insurance has only one per cent share in the terrorism pool (the premiums of terrorism risk insured by all players are collected as a corpus from which claims are paid out). Premium contribution to the pool depends on the market share of the insurance companies.

Change in Policy Wording

In November, the Insurance Regulatory and Development Authority gave its approval to relax the policy wording. The terms and conditions of insurance coverage for fire, engineering and motor own damage segment can be changed by insurers stipulated by the regulator, from January 1, 2009.

Mr Bakshi said the change in policy wordings is a positive and appropriate move taken by the regulator. It would be well-balanced for the policyholder and is a huge opportunity for insurance companies to bring innovative products, he said.

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