Free pricing blues for insurers

Players may have to suffer underwriting losses this year.

Detariffing of the non-life insurance sector, which kicked off today, will benefit corporates and individuals. But the sector may have to suffer underwriting losses this year. And most of the players in the sector will have to survive on investment income.

Says Dalip Verma, managing director, Tata-AIG General Insurance Company, "Whenever rates were liberalised, a downward trend had followed, with rates plateauing later. Over a period of time, they stabilise. This has been true globally. The same will happen in the domestic insurance sector too."

"Though some insurers will lower rates to capture market share, there may be some who will not cut and will sacrifice market share," Verma said. The Rs 20,421-crore non-life insurance sector was detariffed today.

That means premium rates that were set by the Tariff Advisory Committee and was followed by insurers all these years have been done away with. From today, insurance companies are offering their own rates.

However, the products will remain the same as the Insurance Regulatory Development Authority of India (Irda) has not allowed insurance companies to change wordings, terms and conditions of the products till March 31, 2008.

The move though will benefit corporates and individuals who will not only get better rates but will also witness tremendous efficiency and prompt service delivery from insurers. Insurers, in order to retain clients and capture market share, will compete with each other by lowering premium rates.

Says K N Bhandari, general secretary of the General Insurance Council (a body representing all insurance companies), "Because of the controlled rates received in motor third-party premium (a loss making business for insurers), and with the likely downward revision of rates in fire, engineering and motor own-damage, insurers will have to suffer underwriting losses. Also, the non-life industry may not grow this year." The industry growth was 16.48 per cent in 2005-06.

Detariffing will also bring the focus on better management of risk. Says Bhandari, "Detariffing is an opportunity to manage risk better and enjoy better rates. Detariffing means merit rating and not free rating. So customers should take care of their risk. Net worth of the company, distribution model, results, ability to manage risk and claims will go into rating a risk."

"Every insurance company will have to protect solvency which will be well monitored by Irda. Regulation of price will depend on the product, volume of sales and claim experience. So in some cases prices will fall while it will rise in other cases. Also since reinsurers distribute their risk globally, there will be no chance of reinsurance prices falling as there has been huge losses," said Ajit Narain, CEO and managing director, Iffco Tokio General Insurance.

SETTING FREE

The Insurance Regulatory Development Authority of India has not allowed insurance companies to change wordings, terms and conditions of the products till March 31, 2008

Because of the controlled rates received in motor third-party premium (a loss making business for insurers), and with the likely downward revision of rates in fire, engineering and motor own-damage, insurers will have to underwrite losses screening committee