New India Assurance expects its profitability in 2010-11 to take a hit due to provisioning for losses from motor pool, wages and pension contributions. The company posted a net loss of Rs 90 crore for the nine months ending December 31, 2010.

Mr M. Ramadoss, Chairman and Managing Director, New India Assurance, told Business Line , that provisioning for pension contribution is estimated at Rs 500 crore and another Rs 600 crore would have to be set aside to absorb the losses from motor pool.

The premiums for third party motor insurance on cars, trucks and buses were recently hiked by the insurance regulator. Premiums were raised in relation to claims of vehicles.

Premiums on cars were increased by 10 per cent, for trucks and buses they went up by 70 per cent. A minimum hike of 80 per cent on premium for trucks is being sought . Even this he felt was inadequate to absorb the losses arising from claims of third party on motor accidents.

Mr Ramadoss pointed out that insurers had to make nearly 153 per cent provisioning to cover the losses from motor third party.

Public insurers have to bear greater share of third party losses because they insure 60 per cent of the market. (The motor pool losses are apportioned to various companies in proportion to their market share in the non-life insurance business.)

Premium Income

New India Assurance expects to close financial year 2010-11 with a premium income of about Rs 8,250 crore, reporting a growth of 35 per cent from the previous year. It is the largest insurance company in terms of premium income. New India Assurance is willing to sacrifice top-line (premium income) to grow its profitability.

The loss ratio in insuring companies for various risks (group insurance) is high. Therefore the public insurer has made a conscious decision to reduce its exposure to this segment.

Therefore New India Assurance is focusing on growing its premium income from insuring the valuables and health of individuals than corporates.

High-claims

“We decline to renew group insurance where the claims ratio is high,” he said. With insurers free to fix the premiums, they are undercutting themselves to offer the lowest premium to cover various risks of companies.

Mr Ramadoss, said, “Providing group insurance is not business but donation”. For every Re 1 earned as premium, the insurer paid out about Rs 1.20 or more as claims.

Nearly 15 per cent of the Rs 6,042 crore premium income in 2009-10 for the public insurer came from its overseas operations. Mr Ramadoss said it is more profitable to underwrite risk outside India.

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