The Hindu Business Line : IRDA to monitor solvency of general insurance cos

IRDA will monitor the solvency status of general insurance companies on a quarterly basis once the free pricing of insurance products is allowed from next year.

Currently, IRDA inspects the books of insurance companies only once a year.

Mr C.S. Rao, Chairman, IRDA, said that after January 1, 2007, insurance companies will be competing on price as the terms of existing contracts would be maintained for about 15 months.

"We will be monitoring the solvency of general insurance companies on a quarterly basis, rather than an annual basis," Mr Rao said. He was speaking on the sidelines of the Asian Life Insurance Summit.

Around 70 per cent of the general insurance business such as fire and motor insurance are under tariff or a predetermined rate structure.

Insurance analysts say that if companies slash premium rates, it could erode their solvency. Mr Rao said that the IRDA held meetings with transporters' associations and that free pricing would also come into effect for motor insurance policies, including the commercial segment.

The transporters' lobby has opposed detariffing the motor portfolio and the regulator has so far been cautious about implementing a free-price regime in this line of business.

Since the claims ratio of insurance companies for commercial motor segment is above 200 per cent, transporters could expect a big jump in premium.

Mr Rao said at the seminar that the life insurance sector would see around 25-26 players in the next five to six years.

Companies that have so far expressed interest in setting up a life insurance joint venture include Punjab National Bank-Principal, IDBI-Federal Bank-Fortis, Pantaloon-Generali and Religare-Aegon.

Foreign players

In the non-life sector, Mr Rao said, foreign players would evaluate the insurance market after tariff is removed before setting up a joint venture.

The Chairman expressed concern over the increasing `lapse ratio' of insurance companies and said that it was a sign of misselling. "The accent today of life insurance companies is more on acquisition rather than the retention of insurance companies. The average lapse ratio for the insurance industry is around 25 per cent and this needs to be reduced," he said.

Mr Rao said that insurance companies should also be cautious about transplanting sophisticated products from developed markets to a developing market like India.

While the contribution of insurance to the GDP had increased from 1.39 per cent in 1999 to 2.53 per cent in 2005, it is still far below the Asian average of 5.16 per cent. "In five to six years, we should be near the Asian average," Mr Rao said.

He said that consultants had been appointed to undertake a study on the entire insurance sector with a view to create a database.