General insurance sector awaits policy changes

The outlook for general insurance industry in 2011 seems positive, although buyers — of health or motor insurance — would have to shell out more as the sector expects some drastic policy changes.

The year 2010 saw introduction of public disclosure norms for insurers, policy guidelines on customer grievance redressal mechanism, guidelines on bancassurance and corporate agency, regulatory changes in taxation and entry of new players.

Policy wordings

Admit it, most of us do not read the insurance policy we have bought until we have an accident or emergency. The chief of the insurance regulator, Mr Hari Narayan, said that insurance companies are partly to be blamed for this as the policy wordings makes the document unreadable. They have been asked to simplify the language. Some insurers have made a start in this direction. It is expected that many insurers would toe the line in the coming year.

Mr Sanjay Datta, Head-Customer Service Health and Motor, ICICI Lombard, said that simplification would result in greater transparency and spread of awareness of the product offering, which would help penetration.

Portability

Finally, you may be able to move to another insurer without thinking twice about the continuity of benefits and pre-existing illness clause. Portability of health insurance policy, which has been talked about for long, may become a reality. However, Mr Hemant Kaul, CEO, Bajaj Allianz, said health insurance portability will be effective only if there is a standardised cover offered by all insurers.

The removal of exit age in health insurance policies, making it possible for a customer to get lifetime cover by paying the appropriate premium, is one of the most important development, said Mr Ajay Bimbhet, Managing Director, Royal Sundaram.

Watch out

All those employees whose employer takes care of their health insurance cost have to be a bit more careful while selecting hospitals for surgeries as more limits on the payout are expected.

Individual health policyholders with family floater options are expected to witness a hike in premium as well since health insurance continues to have a high claim ratio (net incurred claims to net premium). For every Rs 100 collected as premium, insurance companies were paying Rs 111 as claims to its customers. Claims went up by Rs 6 in 2009-10 from the previous year. With medical inflation doubling, insurers are expected to hike health insurance premiums

Motor Third Party Pool

The motor pool, which currently pays for compensation of the third-party liability claims in road accidents, is expected to undergo a change.

The pool was created as private insurers were wary of insuring trucks as claims were high. The pool is a corpus of premiums collected by all insurers from truck owners to take care of accident claims arising from third party claims. In 2009-10, the pool size was Rs 3,190 crore, running at a deficit of Rs 3,791 crore.

Car and truck premium are expected to go up with insurers stating that they cannot take any more losses. Private players have been clamouring with the regulator to abolish the pool as they are unable to hike premiums in sync with the rise in claims.

Mr Narayan said that the payout is limited in case of accidents in airlines and railways whereas the road sector has unlimited liability.

Recently, the IRDA has formed a committee to review the working of the pool which is expected to have a significant impact.

Third Party liability

At present, the third party liability cover is given on the vehicle. However there is a proposal to change it to the driver. In most instances, it is the driver of the vehicle who is involved in the accident. Insurers say that the driver must be responsible for the accident and therefore a cover with limited liability be provided for him.

This would enable the insurers to limit the claim payout in case of accidents, said Mr Gopala Rathnam, Managing Director, Chola MS.

Therefore if you are driving your car or if you have a driver, you would have to take a limited liability policy.

Performance of companies

Private insurers have performed better than public sector companies in terms of controlling underwriting losses. The underwriting losses of four public sector companies is estimated at Rs 3,499 crore for the first half year of 2010-11 compared with Rs 1,978 crore in 2009-10. For the same period, the underwriting losses of 12 private players were at Rs 597 crore compared with Rs 570 crore. Standalone health insurer Star Health posted profits by cutting its underwriting losses. Health insurers showed that prudent underwriting of health insurance and focus on insuring the common man was profitable compared with insuring employees of large companies. Including Max Bupa, a new entrant, there are three players. One more has applied to the regulator for approval.

Guidelines for M&As

The beginning of 2010 saw talks of Reliance General wanting to acquire Chennai-based Royal Sundaram Insurance. Recently, Mr Narayan said that the approval for merger of the two companies has been pending for long as there were no guidelines for mergers and acquisitions for general insurance companies.

If the merger goes ahead, it would create the second largest private insurer.

Reliance General premium is over twice the size — Rs 2,386 crore (Rs 2,311 crore) — of Royal Sundaram, which is at Rs 913 crore (Rs 806 crore in 2008-09). However, in terms of profitability, the conservative South-based company made a profit of Rs 30 crore (Rs 5 crore) while Reliance incurred a loss of Rs 50 crore (Rs 52 crore).

The regulator expects the guidelines for merger and acquisitions shortly.

So will there be more mergers? Industry observers said that the market potential was huge as health insurance alone was growing at 40 per cent a year. Therefore, it may take a few more years to see consolidation in the industry.

COMMENT NOW