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With the last two quarters of the fiscal year 2013-14 remaining, general insurers are leaving no stone unturned to build up their premium volumes. In a bid to attract more customers, heavy discounts, which are being termed 'unviable' in the industry, are being offered.Though this practice, said industry experts, would help them build the top-line, they anticipate an impact on the bottom-line profits.
"Unreasonable rates are being floated in the market to lure customers. While this would help insurers get in the premium volumes, lack of underwriting discipline reflected in these heavy discounts, will impact their books in the December and March quarter," said a senior official of a large broking firm.
An intense competition, coupled with newer players entering the market has made the situation worse. This includes not just segments such as group health, but also property and fire and engineering. In fact, industry insiders said that after the fire and engineering was de-tariffed in 2007, the rates have even seen a 90-95% drop.
A senior executive of a private general insurance firm explained that with respect to high-ticket policies, reducing the premium is perhaps the only way to win an account. "Almost all of the players are offering discounts. If we stop giving discounts, big-ticket customers would go to rival companies where they are better prices," the official added.
Members from the broking community are of the view that while on one side medical inflation is one the rise, it is ironical that general insurers are undercutting health insurance prices for customers. "Though there may be short-term gains for the insurers, in case of a large claim, they will have to bear heavy costs," said the chief broking officer of a New Delhi based insurance broking company.
Underwriting losses, for the industry, as a whole could increase. The Insurance Regulatory and Development Authority (Irda)'s annual report showed that general insurance companies saw underwriting losses of Rs 9,969 crore in 2010-11 as compared to Rs 5,944 crore in the previous year, which was almost a 68% rise. "If the trend of under-cutting prices to unimaginable levels, these losses could exceed Rs 12000 crore," said the chief executive of an insurance intermediary.
Not just brokers, the standalone health insurers are also perturbed by this trend. While there were expectations that only standalone health insurers would be able to sell products in group health segment, Irda did not pass any order to this effect. Hence, these health insurance companies are staying away from these areas.
"We are currently not focused on the group business due to irrational pricing in the market that compromises the shareholder value. The company will not be able to compete effectively in this market," said a senior official of a standalone health insurer.
To contain the underwriting losses of the four PSU general insurance companies on account of various practices, including offering uneconomical and un-viable discounts, the Department of Financial Services (DFS) of Ministry of Finance had issued certain during 2012-13, specifically pertaining to underwriting of health and motor insurance. However, these measured were reversed after PSU general insurers said that this had lead to shift in business from them to private general insurers.
While in September last year, DFS had put restrictions on acquisition costs in individual health segment, it later said that public sector general insurers can themselves determine acquisition costs for each age group provided that the combined ratio does not exceed 100% and management expenses are well within the limits of the Insurance Act.
From a customer perspective too, though discounts may be attractive, industry insiders fear that these policyholders could face issues during the time of claim. "It is an insurer's prerogative, whether or not to offer discounts. But, they should ensure that servicing and claims handling processes are not handled in a callous manner, for such customers," said the India managing director of a global insurance broking firm.
General insurance companies saw a 16.1% in premium collection for the April to August period, as compared to same period last year. Non-life companies collected total premiums of Rs 32308.33 crore as compared to Rs 27823.29 crore in this period last fiscal.
