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Harsha Vadlamani/Mint
Harsha Vadlamani/Mint

Where is the growth in the general insurance space?

Awareness levels have increased but are still low for growth to pick up

Growth has been elusive for the general insurance sector. In the past three years, the non-life sector has seen a slowdown and 2014 was no exception. According to figures on gross premium underwritten up till November this year, the general insurance industry grew by 9.24%. In FY14, it grew at 12% and around 19% in FY13. “Growth is slowing and it is partly due to the economic environment and partly due to the fact that the industry hasn’t taken enough measures to increase insurance penetration. Awareness levels have increased but are still low for growth to pick up," said Tapan Singhel, managing director and chief executive officer, Bajaj Allianz General Insurance Co. Ltd.

However, Insurance Regulatory and Development Authority (Irda) initiated reforms which may bring positive changes.

Long-term motor policy

In motor insurance, Irda allowed insurers to file long-term mandatory third-party insurance cover for two-wheelers for a term of three years. A large number of two-wheeler owners are not insured mainly because they don’t want to get into the hassle of renewing the policy every year.

“About 70% of the two-wheelers plying are uninsured. Given such poor levels of insurance, a long-term insurance cover is a welcome step. This should also be extended to commercial vehicles since 35-40% of them are uninsured. But in the case of private vehicles, about 85% are insured so that segment is not a problem," said Singhel.

Irda has allowed insurers to file a three-year comprehensive policy as well, but insurers are likely to start with long-term third-party covers first.

Increase in premiums

Irda also expressed concerns over pricing of non-life products not being adequate owing to stiff competition after the industry got de-tarriffed. Accordingly, Irda has suggested that the burning cost must be the starting point while pricing fire, property and group health products from next year. “Burning cost is the cost of claims or the cost of pure loss. The market is moving towards a claims plus pricing mechanism,"said Gurpal Dhingra, director, Prudent Insurance Brokers Pvt. Ltd. “It is likely to cause concern to customers who have enjoyed huge discounts on fire and group health insurance policies. Corporate customers who have been able to insure risks at very low premiums in a market where insurance companies were fighting for market share with little or no underwriting practice will now see an increase of 200-300% in fire premiums alone," he added.

The industry has welcomed the step. “Insurers will price commensurate with the risk. The industry is operating on a combined ratio of close to 117% which means the pricing is not right, which ultimately will get reflected in the industry’s reluctance to pay claims. Industry needs appropriate levels of pricing," said Singhel. Combined ratio (expense ratio plus loss ratio) indicates a product’s profitability. Ratio of over 100% means it is not profitable.

Smaller company health covers

Health insurance regulations, which were implemented in 2013, made products customer friendly. “The standardizing terms has brought greater awareness among customers and reduced confusion. This year, insurers have focused on product innovation. There was greater focus on health insurance for families and even policies with an international coverage," said Manasije Mishra, chief executive officer, Max Bupa Health Insurance Pvt. Ltd.

Awareness levels, though, continue to remain low. “The amount of insurance bought has increased but much still remains to be desired. Most customers still bank on health insurance covers provided by their employers," said Mishra.

However, owing to huge pressure on group health insurance premiums, these policies have started shaving off extra benefits. “Many group policies have stopped covering parents of policyholders or giving maternity benefits," he said.

The industry, however, is hopeful that 2015 will be better. “The economy is expected to do better and since general insurance industry depends on economic environment, there is hope we will see growth coming back. Also, if Irda’s directive is implemented and companies increase their pricing, profitability will improve," said K.G. Krishnamoorthy Rao, managing director and chief executive officer, Future Generali Insurance Co. Ltd.

The new year is surely going to be active for the general insurance sector in India.

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