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S. Bridget Leena

Chennai, Sept. 22 General insurers, particularly private players, are gearing up for a lower profitability for the current financial year. Industry observers say that the current year is likely to be worse than last year, a year in which most private sector players reported a dip in profits.

Reasons: mandatory contributions to the motor pool and the crash in prices after de-tariffing. Both these factors were there last year too, but insurers expect a higher burden on account of them in the current year.

Mr Gopala Rathnam, Managing Director, Cholamandalam MS General Insurance, said that detariffing (free pricing) of ‘fire’ and ‘motor’ segments, without allowing changes in policy wordings, has led to a drop in price. The fall in fire premiums have been particularly pronounced — around 80-90 per cent — over last year, he said.

To capture market share there is “massive undercutting happening” in the fire portfolio, about 80 per cent is being discounted, said Mr Swaraj Krishnan, CEO, Bajaj Allianz General Insurance.

In addition to prices continuing to be low, there is this burden of ‘motor pool contributions’. (Motor Pool is the corpus to which all insurers have to mandatorily contribute , proportionate to the company’s market share.)

This burden will be more in the current year, because private sector companies’ market share is increasing. According to the Managing Director of a large private insurance, in 2007-08, for every one per cent of market share, a company will have to shell out Rs 4 to 5 crore to the motor pool.

However, in the current financial year this load will be higher — Rs 7 crore to Rs 8 crore for each percentage point increase in market share, because the third party commercial vehicles insurance itself is growing.

Of the eight private players, only Bajaj Allianz General Insurance and ICICI Lombard General Insurance have reported higher profits in 2007-08 compared with the previous year. However, both companies have said that the Motor Pool created a dent in profits even if the companies had reported increased profits in 2007-08, over the previous year.

Of the 12 players (including four public sector insurers) Bajaj Allianz General Insurance is the only insurer to have made underwriting profits for the last few years. But even this company reported underwriting losses of Rs 21 crore for 2007-08, because of the motor pool contributions. Without the motor pool the company made an underwriting profit of Rs 19 crore.

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