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C. Shivkumar

Private sector grows at fast pace, wrests more of low claims biz

Bangalore , Aug. 17

Private sector general insurers have continued to nibble away public sector's markets share in the first quarter of the current financial year.

Data released by the Insurance Regulatory and Development Authority indicates that the over all size of the non-life market grew only by 9.97 per cent on a year-on-year basis to Rs 6,629.18 crore in the first quarter of the current year.

The private sector has grown by 60.41per cent in the first quarter this year and the market share has increased to 35 per cent, as against the previous year's figure of 27 per cent. The private sector's share in the non-life business in Q1 was Rs 2,293.61 crore.

Insurance industry sources said that rise in the market share of the private sector was mainly from undercutting the public sector companies in renewal business during the current year. Business of the public sector insureres grew only 10 per cent in the period to Rs 4,335.56 crore.

Main worry for PSUs

The growth numbers by itself were of little worry to the public sector insurers. But the major worry for the PSU insurers was that they were conceding their low claims business to the private sector. The aggressive build-up of market share by the private sector comes ahead of detariffing by next year, when premiums are expected drop sharply.

In fact, some of the major renewals conceded were fire and engineering risk covers, where the claims ratios are only about 50 per cent. Instead, the public sector was being saddled with the high claims policies, motor and motor third party risks. These risks have claims ratios in excess of 125 per cent of the premium collected.

High yields on investments

The insurers said that what came as saving grace for the PSU insurers were the high yields on investments during the period. The mean yield on investments during the first quarter has gone up to over 8.5 per cent for the PSU insurers up from under 7 per cent during the period, the sources said. Private sector still continued to have a lower yield on investment, of just about 6.5 per cent. Faced with this disadvantage, private sector insurers continued to stay away from motor and commercial vehicles industry in view of the potential impact on bottom line.

Abstention from high claims risk covers was also driven by the need to ensure capitalisation. High claims payout tends to bleed capital. Given the current constraints faced by private sector insurers in capitalisation and recapitalisation, the preference was to abstain from high claims business. On the other hand, low claims portfolios ensured high levels of profits, the sources said, adding that they were used bolster the general reserves.

The sources said that the high growth in Q1 of the private sector also resulted in rising of cession to international reinsurers, bankers said. Industry estimates were that at least 50 per cent of the insurance premia collected by private sector were ceded to international reinsurers. This was to ensure that they complied with the regulator's solvency margins of 150 per cent, the excess of capital and value of assets/investments over the insured liabilities.

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