 "Fire insurance rates to zoom up for corporates")
The insurance regulator’s whip on insurers to better price fire, property and group health risk might prove to be costly for customers. Since heavy discounts up to 90 per cent are being offered to customers in fire portfolio, estimates show that these corporates would see an increase of 200-300 per cent in their rates on an average.
Insurance Regulatory and Development Authority (Irda), in its guidelines on pricing of risk, has said industry-wise loss cost must be the starting point and should be considered for pricing a product. Burning costs must be looked into. The burning cost is the estimated cost of claims in the forthcoming insurance period, calculated from previous years’ experience adjusted for changes in the numbers insured, the nature of cover and rate of medical inflation. This is a ratio used by insurers to protect themselves from larger claims that exceed premiums paid.
Pavan Dhingra, CEO, Prudent Insurance Brokers, said after applying these discount rates, at times there is a huge difference between the prevailing policy premiums and the burning cost. “Insurance premiums will go up massively for all customers in 2015 when burning cost is the start point,” he said.
Irda has said insurance companies can consider burning cost of a particular risk on its own past acceptances for all available products.
It further said since burning cost for property risks are published by Insurance Information Bureau (IIB) of India for perils other than natural catastrophe, insurers need to consider adequate pricing for the said risks, if offered.
Though this was to be enforced from January 1 next year, it has been postponed to February 1. Dhingra said it needs to be seen as to how companies would implement it.
The insurer’s own experience on procurement and management costs also needs to be considered to a large extent of current levels, said Irda. The regulator said due to aggressive competition in the market, risks are not being adequately priced.
In a bid to retain corporate accounts, certain non-life sector insurers are indulging in this practice of offering high discounts. Industry players said there is not just transfer of accounts from private to public, but also from one private non-life insurer to the other. Industry experts believe that it is not sensible to offer discounts to large profitable firms, since they are capable of purchasing insurance without a subsidy.
Insurance Regulatory and Development Authority (Irda), in its guidelines on pricing of risk, has said industry-wise loss cost must be the starting point and should be considered for pricing a product. Burning costs must be looked into. The burning cost is the estimated cost of claims in the forthcoming insurance period, calculated from previous years’ experience adjusted for changes in the numbers insured, the nature of cover and rate of medical inflation. This is a ratio used by insurers to protect themselves from larger claims that exceed premiums paid.
Pavan Dhingra, CEO, Prudent Insurance Brokers, said after applying these discount rates, at times there is a huge difference between the prevailing policy premiums and the burning cost. “Insurance premiums will go up massively for all customers in 2015 when burning cost is the start point,” he said.
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Prudent has done an analysis to gauge how much of an increase customers will be hit with given the existing highly discounted tariffs and the fact that Industry Burning Cost will be the start point for determining tariffs, come January.
Irda has said insurance companies can consider burning cost of a particular risk on its own past acceptances for all available products.
It further said since burning cost for property risks are published by Insurance Information Bureau (IIB) of India for perils other than natural catastrophe, insurers need to consider adequate pricing for the said risks, if offered.
Though this was to be enforced from January 1 next year, it has been postponed to February 1. Dhingra said it needs to be seen as to how companies would implement it.
The insurer’s own experience on procurement and management costs also needs to be considered to a large extent of current levels, said Irda. The regulator said due to aggressive competition in the market, risks are not being adequately priced.
In a bid to retain corporate accounts, certain non-life sector insurers are indulging in this practice of offering high discounts. Industry players said there is not just transfer of accounts from private to public, but also from one private non-life insurer to the other. Industry experts believe that it is not sensible to offer discounts to large profitable firms, since they are capable of purchasing insurance without a subsidy.