General insurers are leaving no stone unturned to build premium volumes. To attract more customers, heavy discounts are being offered. Experts have said though this would help boost revenue, profits would be hit.
"Unreasonable rates are being floated in the market to lure customers. While this would help insurers get premium volumes, lack of underwriting discipline reflected in these heavy discounts would impact their books in the December and March quarters," said a senior official of a large broking firm.
Intense competition, coupled with the fact that new players are entering the market, has worsened the situation. Segments such as group health, property and fire & engineering have all been hit. In fact, industry sources said after fire & engineering were de-tariffed in 2007, rates have seen a 90-95 per cent drop.
Brokers feel while medical inflation is rising, the fact that general insurers are reducing health insurance prices for customers is ironic. "Though there may be short-term gains for insurers, in case of a large claim, they would have to bear heavy costs," said the chief broking officer of a New Delhi-based insurance broking company.
For the industry, underwriting losses could increase as a whole. The Insurance Regulatory and Development Authority (Irda)'s annual report showed general insurance companies recorded underwriting losses of Rs 9,969 crore in 2010-11, against Rs 5,944 crore in the previous year, a 68-per cent rise. "If the trend of under-cutting prices to unimaginable levels continues, these losses could exceed Rs 12,000 crore," said the chief executive of an insurance intermediary.
Standalone health insurers, too, are perturbed by this trend. While it was expected these health insurers would be able to sell products in the group health segment, Irda didn't pass any order to this effect. "Currently, we are not focused on the group business due to irrational pricing in the market, which compromises shareholder value. The company will not be able to compete effectively in this market," said a senior official of a standalone health insurer.
To contain the underwriting losses of the four public sector general insurance companies - National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company - on account of various practices, including offering uneconomical and unviable discounts, the Department of Financial Services had issued a few directives in 2012-13, specifically pertaining to underwriting of health and motor insurance. However, these measures were reversed after these general insurers said the move had led to a shift in business to private general insurers.
In September last year, the Department of Financial Services had put restrictions on acquisition costs in individual health segment. Later, it said public sector general insurers could determine acquisition costs for each age group, provided the combined ratio didn't exceed 100 per cent and management expenses were well within the limits of the Insurance Act.
Though discounts may be attractive to customers, industry insiders fear policyholders could face hurdles during claims. "Whether or not to offer discounts is an insurer's prerogative. But they should ensure servicing and claims handling processes are not handled in a callous manner for these customers," said the India managing director of a global insurance broking firm.
General insurance companies saw a 16.1 per cent rise in premium collection for the April-August period, against the year-ago period. Non-life companies collected premium of Rs 32,308.33 crore, compared with Rs 27,823.29 crore in corresponding period last year.
"Unreasonable rates are being floated in the market to lure customers. While this would help insurers get premium volumes, lack of underwriting discipline reflected in these heavy discounts would impact their books in the December and March quarters," said a senior official of a large broking firm.
Intense competition, coupled with the fact that new players are entering the market, has worsened the situation. Segments such as group health, property and fire & engineering have all been hit. In fact, industry sources said after fire & engineering were de-tariffed in 2007, rates have seen a 90-95 per cent drop.
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A senior executive of a private general insurance firm said for high-ticket policies, reducing the premium was, perhaps, the only way to win an account. "Almost all the players are offering discounts. If we stop giving discounts, big-ticket customers would go to rival companies with better prices," the official said.
Brokers feel while medical inflation is rising, the fact that general insurers are reducing health insurance prices for customers is ironic. "Though there may be short-term gains for insurers, in case of a large claim, they would have to bear heavy costs," said the chief broking officer of a New Delhi-based insurance broking company.
For the industry, underwriting losses could increase as a whole. The Insurance Regulatory and Development Authority (Irda)'s annual report showed general insurance companies recorded underwriting losses of Rs 9,969 crore in 2010-11, against Rs 5,944 crore in the previous year, a 68-per cent rise. "If the trend of under-cutting prices to unimaginable levels continues, these losses could exceed Rs 12,000 crore," said the chief executive of an insurance intermediary.
Standalone health insurers, too, are perturbed by this trend. While it was expected these health insurers would be able to sell products in the group health segment, Irda didn't pass any order to this effect. "Currently, we are not focused on the group business due to irrational pricing in the market, which compromises shareholder value. The company will not be able to compete effectively in this market," said a senior official of a standalone health insurer.
To contain the underwriting losses of the four public sector general insurance companies - National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company - on account of various practices, including offering uneconomical and unviable discounts, the Department of Financial Services had issued a few directives in 2012-13, specifically pertaining to underwriting of health and motor insurance. However, these measures were reversed after these general insurers said the move had led to a shift in business to private general insurers.
In September last year, the Department of Financial Services had put restrictions on acquisition costs in individual health segment. Later, it said public sector general insurers could determine acquisition costs for each age group, provided the combined ratio didn't exceed 100 per cent and management expenses were well within the limits of the Insurance Act.
Though discounts may be attractive to customers, industry insiders fear policyholders could face hurdles during claims. "Whether or not to offer discounts is an insurer's prerogative. But they should ensure servicing and claims handling processes are not handled in a callous manner for these customers," said the India managing director of a global insurance broking firm.
General insurance companies saw a 16.1 per cent rise in premium collection for the April-August period, against the year-ago period. Non-life companies collected premium of Rs 32,308.33 crore, compared with Rs 27,823.29 crore in corresponding period last year.