New Delhi: Rating agency Crisil has said hiking of third party motor premiums by Insurance Regulatory and Development Authority (Irda) will help the general insurance companies recoup some of their underwriting losses, which are expected to cross Rs10,000 crore in 2010-11.
Earlier this month, Irda had increased third party premium rates by upto 68% to help general insurers reduce some of the losses.
“The rate hike is expected to significantly improve the general insurance industry’s combined ratio to around 110% in 2011-12 from an estimated 132% in 2010-11”, Crisil said.
Combined ratio is a ratio of incurred losses and expenses to the total premium. A combined ratio of more than 100% means that the company is incurring underwriting losses, which means, its claims payout is higher than the premiums collected.
According to the rating agency’s estimates, general insurers are likely to incur an underwriting loss of Rs10,000 crore in 2010-11, as against Rs5,900 crore in 2009-10, an increase of almost 70%. It attributes this loss mainly to the weak underwriting performance, increase in reserving requirements for each of the past four years on the TP motor insurance pool, and wage revisions in public-sector insurance companies.
Third party motor pool is the only segment where the rates are still regulated by Irda. As a result, it had become a loss making business for the insurance companies. To improve the claims ratio, Irda had announced an increase of 10% in insurance premiums for private cars and two-wheelers and 68% for goods and passenger vehicles.
But according to Crisil, even this hike may not be sufficient to cover the substantial losses incurred in this segment. “ The TP motor insurance segment is marked by unlimited liability and numerous instances of inflated and fraudulent claims…premium rates need to more than double from the 2010-11 levels for the industry to make underwriting profits in this segment”.
Incurred claims ratio in third party motor segment was more than 150% in 2008-09, Irda data shows.