De-tariffed regime expected to come into effect from January
High claimsportfolios like medical, motor may see repricing.
Undercuttingmay happen in low claims businesses.
PSU insurersbetter capitalised, have an edge
Bangalore, April 20
The public and private sector general insurance companies have begun preparing for a complete deregulation of tariffs in the industry.
All the four public sector insurance companies, according to sources, have put in place separate cells and are in the process of compiling data for quoting tariffs in a competitive environment. The data being compiled included industry and customer-wise claims data. The detariffed regime is expected to come into effect from January next year.
The sources said that there were fears that tariffs would be driven down due to intense competition in such a regime, especially in sectors that had a low claims history such as engineering, fire, marine and aviation. Such a situation was likely to result in large-scale migration of certain categories of policies to the private sector, as has happened in the past due to severe undercutting, they said.
But public sector insurers said that they would not under-quote for acquisition of business. "We will have to take into account our cost of business acquisition and the risks. Accordingly, any pricing will be done on the basis of the probable maximum loss ratio." This implied that sectors with high losses were unlikely to see major tariff drops.
Undercutting of tariffs
A chief executive of a public sector insurance company, however, said that undercutting of tariffs would depend on the reinsurance markets. Undercutting would be possible if international reinsurance tariffs go down, since the private sector was entirely dependent on the facultative reinsurance markets (facultative insurance is done on a case-to-case basis). Given the fact that the ceding commissions were already in the negative zone for many sectors, there was little scope for migration to the private sector, especially since they were undercapitalised.
PSUs have an edge
Public sector insurers, sources said, were better equipped, since they were capitalised to the extent of Rs 15,000 crore. Besides, with the equity market profits, the public sector ability capitalisation was expected to improve further. In addition, the public sector also had access to a risk pool created amongst themselves for sharing large liabilities and to restrict reliance on global reinsurance business.
Technically, such a detariffed regime was expected to help the public sector exit some loss-making businesses or re-price some high claims portfolios, especially the motor insurance business, sources said. The motor insurance business currently has a claims ratio of over 150 per cent. According to them, the regime would also allow re-pricing of other liabilities businesses, especially the medical insurance business, where the claims are also close to about 130 per cent. There would be some rationalisation in both the sectors, implying that tariffs were likely to undergo major increases.