Pvt general insurers on profit path

Private general insurance companies have started garnering profits earlier than the projection made at the time of their entry. Of the eight private sector companies, four have already broken even.

ICICI Lombard and Bajaj Allianz General had broken-even in the second year of operations in 2002-03. Royal Sundaram Alliance and Tata AIG, which were established in October 26, 2000 and January 22, 2001 respectively, have caught-up with them this year.

C S Rao, chairman, Insurance Regulatory and Development Authority, told Business Standard "Unlike life insurance companies, general insurance companies renew their policies every year, so it is possible for them to break-even faster than the former, if they were prudent in underwriting policies. The experience gained from their overseas joint venture partners have helped the Indian counterparts to break-even faster."

Though he pointed out that many of private players have not yet tapped the personal line of business very well.

When the private sector entered the insurance sector it was expected that these companies would take at least five years to earn profits.

Three main factors credited for the early breaking-even are the prudence of underwriting insurance policies resulting in lower claims, reducing management and acquisition costs and also contribution from group business to the premium income earned.

Unlike public sector companies, the private sector companies are more stringent in managing their expenses, acquisitions cost and claims. The management of private sector companies have greater accountability and answerability to their shareholders and promoters.

Therefore they are prudent in underwriting their portfolio. Whichever portfolio is loss-making they underwrite the minimum required by the regulator, as seen in the case of commercial vehicle segment under the motor portfolio.

Public sector companies have no other option but to insure even loss-making portfolios and their acquisitions costs are high due to large employee base.

The ratio of total claims of Tata AIG General is lowest compared to other players. ICICI Lombard total claims ratio had risen to 89 per cent in 2003-04.

Sandeep Bakshi, managing director, ICICI Lombard said that due to major claims in the fire portfolio the total claims ratio had increased.

Kamesh Goyal, CEO, Bajaj Allianz General said the company had brought down their management and acquisitions cost during 2003-04. While Antony Jacob, managing director, Royal Sundaram attributes the profits to his company's focus on customer service excellence.