Insurance premiums to turn 10% costlier

The insurance cost for Indian companies and motor vehicle owners is set to surge as global reinsurers, impacted by the war in Ukraine and other weather-related losses worldwide, have raised rates by 40-60%.

The increase in reinsurance rates is expected to result in a minimum 10% rise in insurance premiums for properties, liabilities, marine, and motor covers in the coming months, top executives of Indian general insurers said.

“The cost of reinsurance is expected to increase the property premiums by 8-10% across a few categories of risks. Similarly, we may witness an increase in motor and marine covers as well,” said Ritesh Kumar, managing director and chief executive of HDFC ERGO General Insurance Co. Ltd.

India’s general insurance industry, comprising 24 companies and excluding standalone health and agriculture insurers, underwrote a gross premium of ₹2.15 trillion during FY23, a 16% increase from the previous year. These insurers collectively hold 84% market share in the general insurance industry.

Bhargav Dasgupta, managing director and CEO of ICICI Lombard General Insurance Co. Ltd, India’s largest private general insurer, said, “Extensive damages are happening, which in turn, increased the reinsurance costs for Indian insurers.”

For India, reinsurance rates have risen roughly 40% and 60%, Dasgupta said.

“Due to the exposure to catastrophe losses, (reinsurance) rates have gone up, which affects all lines of business—factories, properties, motor, everything it affects. The lines that got affected more are the commercial lines, for corporates,” Dasgupta said.

HDFC Ergo’s Kumar stated that about 50% of the premiums for property and liability lines of business at the industry level are reinsured.

Indian companies buy large insurance covers to mitigate the impact of unforeseen liabilities and catastrophic losses. They typically buy insurance cover to protect against fire, marine-related risks, engineering, and business interruptions.

Motor insurance is, however, mandatory for all vehicle owners in India. Motor insurance alone contributed ₹81,292 crore in premiums to the general insurance industry’s total business in FY2023.

With the latest rise in reinsurance costs, the premium rates for buying insurance for vehicles such as passenger cars, bikes and commercial vehicles are likely to go up by 10-15% in the next few months, according to industry experts.

At ₹8,582 crore, ICICI Lombard’s motor business alone contributed around 40% of the company’s total premium in FY2023. The insurer’s total premium grew by 17% in FY23.

According to the Insurance Regulatory and Development Authority of India (IRDAI), during FY23, general insurers underwrote a total fire insurance premium of ₹23,933 crore, marine insurance premium of ₹5,058 crore, engineering insurance premium of ₹4,281 crore, aviation insurance premium of ₹889 crore and a liability insurance premium of ₹4,863 crore.

General insurers’ liability portfolio comprises insurance cover against workmen’s compensation, employers’ liability, public liability, product liability and other liability covers.

HDFC Ergo’s Kumar said since central banks in Western countries have increased interest rates by 4.5-5% over the last 12 months, increasing the cost of capital for global reinsurers.

Further, Kumar said the climate change uncertainty had gone up in recent years, leading to huge losses for the reinsurers.“Even though there has been a limited impact of catastrophes in India, the reinsurance cost for catastrophic covers has increased significantly during the year. In lieu of this, a significant impact is expected on the premiums for property and engineering risks, especially for flood cover,” Kumar said.

He said that major reinsurers providing reinsurance capacities in India are based in Europe and the US.

Globally, Munich Re, Swiss Re, Hannover Re, SCOR (France), Partner Re, Everest Re, Lloyd’s and Reinsurance Group of America are the top reinsurance firms.

“A couple of events happened in the Ukraine war, which has increased the losses for the industry. The reinsurance rates have gone up also because of the climate change and the related losses that we are seeing,” said Dasgupta, whose company underwrote a total gross premium of ₹21,025 crore for FY23, the highest among private players, commanding a market share of 8.2% in the general insurance industry.“The Western world, particularly, has had a series of catastrophe losses, and that has had a significant financial impact on the reinsurance market, according to ICICI Lombard’s Dasgupta.

“At the same time, because of inflation, interest rates are going up, their (reinsurers’) investment book had had some hits. So the interest rates globally have gone up. Even this year for India also, for all of us in the market, reinsurance rates have gone up,” Dasgupta said.