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How many Indian general insurers do you think will be able a handle a catastrophe of the magnitude of the twin disasters that rocked Japan recently? Not more than a handful if you look at their performance in pricing risks. Most of them have made underwriting losses for the last so many years and also during the first nine months of the last fiscal.
Insurance companies, particularly those in the public sector, have been concentrating on acquiring more business but often without sufficient rewards. For years, public players made profits only from their investment income and not from their core business of underwriting insurance.
However, for the nine months ending December 31, 2010, with the exception of United Indian Insurance, the others three insurers, National Insurance, New India Assurance and Oriental Insurance, have posted a loss on their investment income too. These state-owned players have a market share of about 50 per cent of the total insurance business in terms of premium income.
Loss figures
Four public sector companies have reported underwriting losses of about Rs 5,000 crore for the nine months ending December 31, 2010. Underwriting losses were at Rs 4,541 crore in 2009-10 against Rs 4,226 crore in 2008-09.
Private sector players are also trying to bring down their underwriting losses. Fourteen private insurers reported underwriting losses of Rs 782 crore for the nine months ending December 31, 2010.
IRDA concerned
Couple of months back, the insurance watchdog, Insurance Regulatory and Development Authority (IRDA), expressed concern over the mounting underwriting losses of public sectors insurers. The regulator had warned that public sector insurers pare such losses else they ran the risk of being wiped out in five years' time.
They were asked to focus more on underwriting insurance based on risk.
The two growing segments, health and motor insurance, have the highest loss (claim ratio). Importantly, public sector players are aggressive in giving insurance cover to companies at a heavy discount of 80-90 per cent in spite of adverse claims, pointed out private players.
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