The Finance Ministry has asked public sector general insurance companies to bring down their expense ratio and prune management expenses to improve profit.
The ministry has assessed the performance of four public sector insurance companies recently. Health and motor insurance remain the concern area, official sources said.
Expenses ratio has to be more competitive. Besides, these companies have also been advised to bring down management expenses, sources said.
Expense ratio, in insurance parlance, is the proportion of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance.
The four PSU entities are New India Assurance, Oriental Insurance, United India Insurance and National Insurance.
Non-life insurers need to keep a check on their expense ratio to ensure that solvency is not adversely affected.
Sources said that there was need to bring down claim ratio in the health insurance segment so that the profitability can be improved.
It is to be noted that the Kolkata-based National Insurance Company witnessed a 67% decline in net profit in FY11 even when premium income rose by 32%.
At the same time, Chennai-based United India Insurance registered a 81% fall in net profit despite a 22% rise in premium. The company registered an 83% fall in operating income.
