The Hindu Business Line : Fire cover tariffs drop as free pricing kicks in

High-level sources said that premiums for renewalof fire insurance were down by at least 40 per cent. Till the end of 2006, the premium for insurance ranged between Re 1 and Rs 1.25 per Rs 1,000. This tariff changed according to the nature of the risks and the industries. But the PSU insurers have now begun aggressively pitching for recovering their lost business to private sector insurers in the free pricing regime and premiums are now down to less than a rupee for fire risks.

The four public sector insurers currently have conceded a share of over 35 per cent in the market that was valued at around Rs 17 lakh crore for the first eight months of the current year. During this period, the market share of the private sector insurers grew by 62 per cent, whereas for PSUs it was only 10.2 per cent.

Howden Insurance Brokers India, Regional Head (South), Mr P. Umesh, said, "Insurers have reduced tariffs for renewals in the free pricing regime, but it is too early to gauge the situation." Besides, the Insurance Regulatory and Development Authority has also conveyed that premiums will not be allowed to drop below 20 per cent beyond the current levels on renewals.

However, sources said that the public sector insurers have circumvented this directive. Almost all of them are now offering discounts that allowed the premiums to drop. For instance, installation of fire extinguishing aids allowed for discounts of anywhere between 2.5 per cent and 15 per cent on tariff. Sources said that the full discount was being passed on to customers. Similarly, they said that the permissible low-claim discounts, which ranged between 5 and 15 per cent, were also passed on to the customers. As a result, the premiums for all categories have dropped to over the 20 per cent deviation permitted by the regulator.

Till December, PSUs had complied with the regulator's Tariff Advisory Committee (TAC) prescribed rate schedule. In the free pricing regime, offering of discounts was well within the guidelines, the sources said. This was because, in a free pricing regime, the discounts are at the discretion of the individual insurers. Besides, the sources said, this kind of discounting was warranted, in view of the claims history of fire and engineering covers. Claims in these segments are currently about 50 per cent, making it profitable.

But the fierce line up between public and private sectors was not just in low- claims covers. Even, the traditional commercial vehicle third party risks that private sector had avoided have now become attractive. This is because, the new pooling arrangement limited the damage to individual balance sheets. The real icing was the fact that individual underwriters would be entitled for a 10 per cent commission in third party risks.

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