The extended lockdown in the country in the wake of covid-19 has resulted in a sharp drop in the number of claims for general insurance companies, as policyholders mostly remained off roads. Fewer accidents in the last 60 days meant lower loss ratio for insurers.
In a bid to pass on the benefit to customers, some companies such as Acko General Insurance Ltd are offering a discount of 10-15% on renewal of motor policies. “Until the second lockdown, claims had dipped by almost 90%. We are giving discounts on the comprehensive (third-party plus own-damage) cover on renewal, but it is on a case-to-case basis," said Animesh Das, head of product strategy, Acko General Insurance.
Premiums started falling from April itself by almost 10-20%, said Sajja Praveen Chowdary, motor business head, Policybazaar.com, financial crisis
Bharti AXA General Insurance Co. Ltd too is studying data to offer some form of discount to customers who have had a long-term association with the company.
This discount is in addition to what insurers generally offer at the time of renewal by way of fall in the insured declared value (IDV), no-claim bonus (NCB) and other discounts. Remember that discounts offered would be on the own-damage part of the policy, as third-party premium rates are decided by the regulator. The Insurance Regulatory and Development Authority of India (Irdai) in March had proposed an increase in third-party premium rates for FY21, but insurers said it might not go forward given the financial crisis people could be dealing with due to the pandemic.
The extent up to which insurers will offer discounts depends on their cash pool and the kind of products they offer. “Premiums are expected to go down by 10% on the industry level, but insurers who have seen an adverse impact on other products such as travel and health insurance may not be able to meet these expectations," said Das. “Premiums will definitely go down with smarter underwriting. We have tailored quotes for each policyholder."
However, not all insurers are offering significant discounts. “The industry is expected to report a 25-30% drop in business growth against last year. One major reason for this is drop in new business, as auto sales have taken a hit. Also, due to the lockdown, there’s been a drop in renewals," said Chowdary.
According to Adarsh Agarwal, appointed actuary, Digit Insurance, the renewal ratio has dropped for motor policies and so has the number of claims. It is not planning to reduce premiums, as it anticipates claims to go up soon.
In developed countries like the US, major insurance companies have offered credit to policyholders as most people stayed home between March and May. That won’t happen in India, said Chowdary, as motor insurance is not the only product in insurers’ portfolios. “Covid-19 claims will hit the books of most general insurers. Most insurers have lowered the premiums, but some may not because they have to provision for their fixed costs."
Chowdary said the discounting will continue for this quarter and the next, but the extent of the discount could vary once the lockdown is lifted completely. Competition among insurers too could add to the pricing pressure.