State insurers take to umbrella policies

PSU general insurance firms looking at 'bundling' risks in one cover.

In a change of business strategy, general insurance companies have widened their sights beyond profits from individual segments and are focussing on overall profitability.

However, public sector general insurance companies have to straddle the complex world of tariff and non-tariff pricing regimes to be able to "bundle" risks in one cover.

Under pressure from private sector players, the public sector general insurance giants have started quoting premiums based on the overall insurance portfolio of corporate clients in terms of how much money the bundle can bring in.

In operational terms, this essentially translates into clubbing risk products together "" be they under the tariff regime or non-tariff regime "" and then reducing the total premium charged in line with the latter's claim history.

The catch, however, is that a corporate may even get some free insurance in this basket approach. And, for a public sector unit, giving anything free is blasphemy. Hence a nominal premium quote of Rs 1.

For instance, fire insurance cover is covered under a tariff policy and the Tariff Advisory Committee sets the floor prices. This is a profitable business for insurance companies as claims are on average lower than the fixed premiums charged by insurers.

On the other hand, premium rates on non-tariff products such as marine, group health and group personal accident insurance covers tend to vary widely.

As insurance companies club the risks -- fire, marine and group health policies -- they can fix the premium charged based on the profitability of the overall corporate business.

Earlier, this was not the case as the insurance outfits used to treat each risk segment separately and price the covers individually depending on the sectoral risks.

"I am ready to reduce the cover price (premium charge of bundled risk products) even if it means offering free insurance cover," said Oriental Insurance Company (OIC) regional manager, V B Bhargava.

National Insurance Company has been following a similar strategy and is racing neck-and-neck with the New India Assurance Company in business development.

Insurance companies are now redesigning and repackaging policies, making them all-risk inclusive covers.

"Rates are thus now to be quoted based on the overall portfolio and not individual risks," said Bhargava, adding that public sector companies were better placed in rebundling products and offering them at cheaper rates.

"Wherever regulations permit, and based on the profitability of the customer, we offer better rates even if it means undercutting the competition," said a senior executive of a public sector insurance player.

Private insurance players were the first to take to this concept. One of the leading private players renewed Nestle India's marine insurance cover for a mere Re 1.

This was possible because the Rs 2,000-odd crore multinational corporate, also sourced its profitable fire insurance policy worth over Rs 1 crore from the same private insurer.

A large corporate house with an asset value of over Rs 400 crore managed to pay just about Rs 22-23 lakh for its fire policy, with an add-on burglary cover from a leading American private insurer.

Oriental Insurance, not having been in a position to offer such a cover earlier, lost out to the private player. This explains why in May 2004, the public sector insurance business increased less than Rs 80 crore, while the contribution by private insurers was over Rs 100 crore.