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C. Shivkumar

Some of the private sector insurance companies were averse to providing statutory cover in view of very high claim ratios in these sectors.

BANGALORE, July 1

THE Tariff Advisory Committee (TAC) of the Insurance Regulatory and Development Authority (IRDA) has said that insurance companies will not be allowed to deny statutory cover. TAC decides minimum cover tariff for the general insurance sector in the country.

Statutory cover includes third party risk insurance for motor vehicles. Sources said here, that some of private sector insurance companies were averse to providing statutory cover in view of very high claim ratios in these sectors.

Third party covers in motor vehicles currently have claims more than 100 per cent of the premium income, which the sector feels are a cause for high losses in the general insurance sector.

As a result, sources said, some of the private sector general insurance companies in a bid to reduce have been restricting exposure in the motor vehicle insurance. Instead, the private insurance companies were focussing only on general insurance business where claims were low, particularly where claims ratios are under 50 per cent.

Since premiums are a major source of income for the insurance companies, the companies preferred only areas where claims were low. This was being done to ensure that they also have a substantial income portfolio, which could be reinvested to multiply their income source. Being in business only for about two years, the private sector companies do not have a large income source from investments unlike the public sector.

Most of the investments made by the private sector also have low yields, largely due to the declining yields in the Government securities where the bulk of the investible corpus are expected to be parked. This income source was barely sufficient to support the high claims ratios, the sources pointed out.

Public sector insurance companies however, have been in a position to support high claims ratios in statutory insurance covers. This is because PSU insurers have average assets yields well over 11 per cent. Also most PSU insurers also have large volumes of high coupon securities in their portfolios, including some of the public sector bonds. But PSU insurers themselves are finding it difficult to support high claims ratios. This is because some of the high coupon securities are due for redemption. The new categories of investments have the same asset yields as the private sector. Besides, the sources said, the private sector was operating on management ratios of close to 30 per cent as against that of PSU insurance companies which operate at 22 per cent. From this year, this ratio is likely to come down further in view of the moves to restrict expenditure outflows, including commissions.

Management ratios include wages, commissions, administrative and promotional expenditure as a percentage of gross premiums. Such ratios can be brought down only if the premium accretions remain high and the claims kept at low levels, they added. Private sector insurers have sought a time frame of at least six years, to bring down these ratios.

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