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The insurance regulator’s directive to insurers to better price fire, property and group health risk may prove to be costly for customers. Given that they currently offer discounts of up to 90% in fire portfolio, estimates by Prudent Insurance Brokers show that corporates will likely see an average increase of 200-300% in their rates.
In its guidelines on pricing of risk, the Insurance Regulatory and Development Authority (Irda) has said that industry-wise loss cost must be the starting point and should be considered for pricing a product. Burning costs must also be looked into, the regulator said.
Burning cost is the estimated cost of claims in the forthcoming insurance period, calculated from previous years’ experience adjusted for changes in the numbers insured, the nature of cover and rate of medical inflation. This is a ratio used by insurers to protect themselves from larger claims that exceed premiums paid.
The move will be enforced starting February 1, 2015, having been postponed by a month.
Pavan Dhingra, CEO, Prudent Insurance Brokers said that after applying these discount rates, at times there is huge difference between the prevailing policy premiums and the burning cost is evident. “Insurance premiums will go up massively for all customers in 2015 when burning cost is the start point,” he said, based on the analysis done by his company to gauge the increase in premium costs that customers will face, taking into account the current discounted rates and the fact that burning cost will be the starting point for determining tariffs.
The result is startling; most corporate customers will see a 3-4 times increase from current fire policy rates, on average. The lowest increase is about 99% while the highest is over 1400%.
Irda has said that insurance companies can consider burning cost of a particular risk on its own past acceptances for all available products.
It further said that since burning cost for property risks are published by Insurance Information Bureau of India (IIB) and are for perils other than natural catastrophe, insurers need to consider adequate pricing for the said risks, if offered.
The insurer’s own experience on procurement and management costs also needs to be considered to a large extent of current levels, said Irda. The regulator said that due to aggressive competition in the market, risks are not being adequately priced.
In a bid to retain corporate accounts, certain non-life sector insurers are indulging in the practice of offering high discounts. Industry players said that there is not just transfer of accounts from private to public, but also from one private non-life insurer to the other. Industry experts believe that it is not sensible to offer discounts to large profitable firms, since they are capable of purchasing insurance without a discount.
