The Hindu Business Line : Motor pool seen positive for PSU insurers

Transfers of third party covers to motor pool would help contain claims. The pool, being a specialised agency, would manage risks better and help plug leakages that have so far been the bane of the public sector insurers.

C.Shivkumar

Bangalore, Aug. 14 Underwriting margins (UM) of public sector insurance companies are expected to improve with the India Motor Insurance Pool (IMIP) in operation now.

Speaking to BusinessLine, the Oriental Insurance Company Ltd Chairman and Managing Director, Mr M Ramadoss, said, “The pool will certainly have a positive effect on the underwriting margins of PSU insurers.”

So far each of the PSU insurer’s underwriting margins have been pulled down by losses in the motor vehicle segments. Claims ratio in the motor third party was close to about 150 per cent for the industry during the last financial year. OICL’s losses in third party claims were in the region of Rs 300 crore.

The losses have kept underwriting margins low. Underwriting margins is a computation used to determine the amount of underwriting loss or gain—based on 100% being the break-even point. Any time the total loss ratio and expense ratio versus the amount of premium written is less than 100%, it is indicative of an underwriting profit. If over 100%, it shows an underwriting loss.

The margins for the PSU insurers are very slim - between 0.5 and 1 per cent implying low levels of profitability. Sources said that since most private insurers have consistently stayed away from motor third party risks, their underwriting margins were close to about 5 per cent, implying high levels of profitability. However, Mr Ramadoss, who is also the chairman of the General Insurers Public Sector Association, emphasised, “Underwriting margins will change and will improve. I cannot give a time frame. It could happen this year or even next year. But it will definitely improve.”

The optimism stemmed from the fact, that transfers of third party covers to IMIP would help contain claims. The IMIP would take the risks off the insurers’ books. Motor TP comprises about 30 per cent of PSU insurers’ premiums. Moreover, he said, the pool, being a specialised agency, would better manage the third party risks and help plug leakages that have so far been the bane of the public sector insurers. But the pool itself is faced with technical problems.

Mr Ramadoss said that the problems would be ironed out by the end of this month and data transfers from all the PSU insurers to the IMIP would be completed by then.

The reduction in losses and improvement in margins would also be helped by the installation of Core Insurance Solutions (CIS). Only OICL has completed the installation of this software. But other PSUs are also expected to complete CIS this year.

Besides, what was also expected to help the underwriting margins for the PSU insurers was the fact, that barring motor third party, all other portfolios have claims ratios of less than 60 per cent.