The non-life insurance industry rues that four full financial years after the “de-tariffing”, the premium rates are yet to come up to reasonable levels.
Till January 1, 2007, insurance companies did not have the freedom to price their products based on their risk perceptions. The Tariff Advisory Committee (TAC) of the Insurance Regulatory and Development Authority set the premiums. Today, only the tariffs of motor insurance are fixed by TAC. .
Back then, it was said that while the competition might force the premium rates down, they would bounce back to their economically logical levels. But that assumption, as has been proved year after year, has turned out to be wrong.
The year 2010-11 was no exception. In a year when the industry has grown 22 per cent (to Rs 37,909 crore in the first ten months), the premium rates have at best “inched up”.
Discounts continue to be as steep as 90 per cent over the levels that obtained prior to 2007. The most recent example of this is the cover given to Madras Cements, by a public sector insurance company.
Mr G. Srinivasan, Chairman and Managing Director, United India Insurance, said that premium rates are slowly inching up at 5-10 per cent, but not at 25 per cent as expected by the industry four years ago.
Mr S. S. Gopalarathanam, Managing Director, Cholamandalam MS General, said the premium undercuts among insurers to offer insurance cover to corporates are “worse this year than last year.”
The two-year-old Bharti Axa General Insurance's, CEO and Managing Director, Dr Amarnath Ananthnarayanan, said overall there is no improvement in the pricing mainly contributed by cut throat competition.
Undercutting
Experts point to the fact that while, on the one hand, more players have entered the industry in the last four years, who do not mind undercutting to secure business, on the other, there has been no major catastrophe that could have spurred insurers to raise premiums.
The situation appears to be somewhat better in health insurance. Mr T. A. Ramalingam, Head – Underwriting, Bajaj Allianz General Insurance, says that the premiums are going up, at rates of between 10 per cent and 15 per cent.
But in the ‘fire', ‘marine' and ‘engineering' segments, insurers continue to bleed. If they still turn in a profit, it is because of the investment income.
A frustrated insurance broker said that unless a Japan-like disaster struck India, insurers here would not realise the grave mistake of not pricing premiums in step with the risks.