Insurers threatened on cut in marine premium

General Insurance Corporation raises objections to unreasonable pricing.

Insurance firms are in a spot of bother after slashing the marine hull premium rates by over 50 per cent in April this year.

With an average claims ratio of about 60 per cent in marine hull, insurance companies rushed to grab a big chunk of the Rs 200-crore market after the risk product was detariffed in April. But, the response of the reinsurers came as a shock for many of them.

Shipping companies, however, were not complaining as they saved a huge amount in premia. GE Shipping saved 25 per cent in premium costs when it renewed the marine hull cover on its fleet. Essar Shipping saved Rs 4.5 crore. Last year, it had to shell out Rs 9 crore on renewal of insurance for its 25 ships.

The Shipping Corporation of India (SCI) also saw a huge savings of 50 to 60 per cent on renewing its marine hull cover. Smaller shipping fleets like Tolani Shipping and Shree Shipping saved about 25 per cent each, this year, in premium charges.

The Indian national reinsurer, the General Insurance Corporation of India (GIC), did not favour the "unreasonable pricing" by the insurers.

"GIC does not support a price that is unreasonable for its capacity. For the obligatory 20 per cent cession, it is forced to offer the same price as underwritten by insurers, but not in the case of going beyond the 20 per cent cession," said sources.

Concerned with its bottomline, GIC sources pointed out that while losses will not perturb the reinsurer, "any risk should have a proper risk premium. It's more to do with one's portfolio".

Due to the large size of risks as many vessels had sums insured of over Rs 100 crore, the premium rate, terms and conditions of marine hull were driven by the reinsurers, as in the case of the aviation industry. In a bid to pick up new corporate business, many insurance companies quoted rates much lower than the international levels.

"This has back-fired on many insurers, who now have to shell out the premium from their own pockets while reinsuring or go back to the client to renegotiate the deal," said a senior insurance broker.

The insurance regulator was understood to have expressed concern on the "unrestrained aggression" by industry players. Today, about 70 per cent of the total non-life insurance business fell under the tariff regime.

After burning their fingers badly, insurance players were on a major recruitment spree to pick up talent from the Gulf countries to beef up their underwriting skills in the area of marine hull.

"With marine hull being detariffed and the industry not having the necessary expertise in the area of risk management, many insurers are hiring from the Gulf, which is known for this talent," said V Ramakrishna, managing director, India Insure, a leading insurance brokerage firm.

ICICI Lombard, Bajaj Allianz, Iffco Tokio, among others, are understood to be recruiting fresh insurance talent from the Gulf.

Rough weather

• In a bid to pick up new business, insurers quote rates much lower than the international levels
• National reinsurer, GIC, does not favour the "unreasonable pricing" by the insurers
• Insurers have to shell out the premium from their own pockets while reinsuring or go back to their clients to renegotiate