Disapproving of the huge discounts offered by general insurance companies in the face of increasing competition, the Insurance Regulatory and Development Authority (Irda) today said such unhealthy marketing practices could lead to financial trouble for the companies.
After the deregulation of rates, general insurance companies have been offering huge discounts on insurance products to tap new customers. Earlier, the cost for insurance policy was decided by a Tariff Advisory Committee (TAC).
“After de-tariffing, the premium has come down to a level where questions arise about the health of insurance companies. If that trend does not abate, then the companies will be in trouble,” said J Hari Narayan, chairman, Irda, on the sidelines of an insurance conference here today.
“Most companies are underwriting losses. We urge companies to improve their practices to stay away from unhealthy competition. The companies should not fight for top lines,” he added.
For 2010-11, the underwriting losses of domestic general insurance companies were close to Rs 10,000 crore. In portfolios like fire, the discounts have been as high as 70-80 per cent.
Even insurers agree that huge discounts are not feasible in the long term. “It will take at least three to five years for general insurance companies to break even. Portfolios like health and motor are challenges. We need to move to a risk-based pricing mechanism, with more deductibles,” said G Srinivasan, chairman and managing director, United India Insurance.
Meanwhile, to improve transparency in reinsurance constracts, Irda has planned to come out with a comprehensive online platform by May next year. Through reinsurance, general insurance companies insure their risks with a foreign or Indian company.
“In reinsurance, the term of policy is a matter between the insurance and reinsurance company. The whole mechanism, in terms of its reporting, is not as rigorous as it is between a regular policy holder and insurer. Most of the transactions with regular insurance companies are monitored very closely, but the information flow between the insurer and re-insurer is not as transparent The online platform will help avoid this,” said Hari Narayan.
