Property and catastrophe insurance premiums likely to shoot up in 2016

Rising incidents of natural catastrophes, such as cyclones and floods, could lead to a jump in property and catastrophe insurance premiums in the next calendar year, say industry experts.

According to industry estimates, insurers are likely to face losses of around ₹2,500 crore from the recent Chennai floods.

Incidentally, in 2014, India witnessed the world’s largest and third-largest catastrophes — Cyclone Hudhud and the Kashmir floods, respectively — in terms of overall damage and losses estimated at ₹5,000 crore.     

Industry officials say that premium rates on property insurance declined as much as 80 per cent during the last five years due to pricing war among insurers. However, in 2016, this trend will reverse.

As part of mega policies, insurers, apart from fire, cover big industrial assets against business disruptions. These policies are primarily reinsurance-driven as insurance companies pass on part of their risk to re-insurers to mitigate risks associated with severe losses.

The fall in re-insurance rates globally, arising from overcapacity (oversupply of capital), have helped insurers keep the premium low.

However, with major foreign re-insurers now planning to open branches in India, there will be an alignment between the re-insurers to ensure that there is an upward correction in property insurance prices, Sanath Kumar, Chairman and Managing Director of General Insurance Corporation (GIC Re), said.

“We expect premium rates in the domestic market to go up as the current prices are unsustainable and high discounts are offered by insurers. We will see a tightening in the Indian market rates as there will be a lot of restrictions in placing reinsurance business overseas,” the GIC Re CMD said.

The restriction stems from the recent proposal from the insurance regulator that general insurers will have to give preference to domestic re-insurer GIC Re, after which they can place business with foreign re-insurers based in India.

Only after they have exhausted these two avenues can they go overseas for placing reinsurance business. 

G Srinivasan, Chairman and Managing Director of New India Assurance, said he expects premiums on natural catastrophes in property insurance to go up as the market has consistently seen major losses over the last three years.

 “We have seen multiple cyclones and flooding in major cities over the last three years which will definitely impact premium rates in the natural catastrophe segment,” said Rakesh Jain, CEO, Reliance General Insurance. 

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