Companies and high-profile individuals will have to pay 30-50 per cent more on premium to insure their assets and properties.
In a recent communication to the four state-owned general insurers, the finance ministry has asked them to do away with the practice of giving massive discounts to grab market share. National Insurance Co, Oriental Insurance Co, New India Assurance and United India Insurance have been asked to segregate the fire portfolio under four parts on the basis of the sum insured and raise the premiums.
These insurers offer huge discounts on big-ticket fire and property insurance polices to big companies like Oil and Natural Gas Corp (ONGC), Reliance Industries, Jet Airways(India), Air India; institutions such as the Board of Control for Cricket in India (BCCI) and high-profile individuals and celebrities. High-value or big-ticket insurance policies are those where the sum insured is more than Rs 25 crore. The discounts are offered in a bid to undercut competition and maximise market share.
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“Companies are offering a ridiculous level of 100 per cent discount on standard fire policies by not charging premium on basic policy but only for add-on covers,” the ministry said in the letter. It added that corporate account holders had been able to get “windfall” discounts, taking advantage of this practice.
“Average premium per policy in different sum insured brands (less than Rs 50 crore, Rs 50-100 crore, Rs 100-500 crore, Rs 500 crore and above) shall be enhanced in such a manner that the combined ratio does not exceed 100 per cent and total premium collection increases by 20 per cent under each band of sum insured,” the letter said. The fire portfolio for these four players, which control more than 55 per cent of the Rs 45,000 general insurance market in India, has an average loss ratio of 120 per cent, which means the claim payout is Rs 120 for every Rs 100 collected as premium .
Accordingly, state-run insurers have been told to work in tandem to ensure loss ratios in fire insurance policies remain below 100 per cent. The ministry also advised them to coordinate among themselves with regard to the growth, profitability and procuration of fire insurance business and discourage unhealthy competition of pricing or otherwise.
“Since we would be required to maintain a combined ratio below 100 per cent, the premiums would raise by 30-50 per cent across various catagories. The impact would be higher for the big ticket insurance polices,” said a senior official at one of the four insurer.
ONGC, which is the holder of the biggest insurance policy in the country, had been paying nearly the same premium over the last few years despite a considerable increase in its asset size. According to market reports, ONGC renewed its policy this year (June) by paying over Rs 125 crore to cover its assets. Last year, it paid nearly the same amount though its assets have increased.
Similarly, premiums for Air India's annual insurance policy, which came up for renewal recently, went up up marginally to around Rs 160 crore, though its fleet size remained nearly the same.
Film personalities, industrialists and sportspersons are mostly known to purchase high-value insurance covers for their properties as well life. Though official figures not available due to the confidentiality norms, reports indicate that cricket legend Sachin Tendulkar had taken an insurance cover worth a whopping Rs 100 crore for his new house in Bandra in Mumbai.
Similarly, sources indicated Bollywood star Shah Rukh Khan had taken a cover of more than Rs 110 crore for insuring his house ‘Mannat’ located at Bandra. Whereas, India’s richest man Mukesh Ambani had taken a cover worth more than Rs 150 crore for his house, Antilla, at Mumbai’s Altamount Road.
“In most of these cases, the premium outgo was relatively smaller compared to the risk insured, given the bargaining power of the customers,” added an insurance broker.
