The Hindu Business Line : Hefty flood claims, higher reinsurance rates

Sources said that almost all general insurers have faced large claims from across sectors on account of the floods and natural calamities this year. Among the sectors that benefited from the intense competition are the large information technology companies in Bangalore, Chennai and Mumbai. IT companies were able to drive down premiums on group medical covers that most of them offer to employees as part of the fringe benefits.

. The sources said that some of the private sector insurers had clubbed asset risk covers and group medical covers and offered package policies to some of their corporate clients.

Effectively, this clubbing meant that asset risk covers, especially fire risks, subsidised medical risks. This cross-subsidisation was possible as the claims ratios in fire risk were barely about 35 per cent against medical claims, where they were about 150 per cent. Since the premium collections in fire were large, general insurers could sustain the high medical claims and still ensure substantial retention.

However, that scenario has changed. Speaking to Business Line, Mr S. Sreenivasan, Chief Financial Officer Bajaj Allianz General Insurance Company Ltd, said, "Each portfolio will be evaluated separately now."

This change was prompted by the high losses that the private sector insurers have taken due to flood claims. Floods are part of the fire insurance portfolio. The loss ratio, as a result, on this portfolio was likely to be close to 70 per cent. Clearly this has dented the ability of the insurers to cross-subsidise medical with fire. In fact, most private sector insurers admitted that the medical premiums would be allowed to rise to reflect the claims ratios in that particular portfolio.

Besides, what has also triggered the rise was the higher international reinsurance premiums. Reinsurance premiums have escalated during the last year to about 0.08 per cent from about 0.04 per cent. If the facultative insurance premiums are any indication, the sources said even treaties for the next financial year are likely to see far harder terms than the current year. Private sector general insurance companies are heavily dependent on reinsurance support. This implied that all the software majors in the country that have historically had high medical insurance claims would now have to brace for higher premiums, Mr Sreenivasan said. The increase would be for both group and retail medical covers.

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