General insurance premiums for coastal regions of Andhra Pradesh and Odisha are likely to shoot up next year due to the high incidence of claims following the severe cyclones that hit the coast in the last two years.
Last year, coastal Andhra Pradesh and Odisha were hit by cyclone Phailin and the general insurance industry received claims exceeding ₹1,500 crore.
According to industry estimates, claims from cylone Hudhud, which severely affected the coastal city of Visakhapatnam this year, are likely to exceed ₹2,000 crore.
Sanjay Kumar, Vice-President and Head, Motor Underwriting of Bharti AXA General Insurance, said that premiums for large commercial projects located in cyclone-prone areas will go up as insurers have faced substantial losses.
As part of mega policies, insurers typically insure big industrial assets against business disruptions apart from fire and damages. These policies are primarily reinsurance driven as insurance companies pass on part of their risk to reinsurers to mitigate risks associated with high severity losses. Reinsurers on their part have warned general insurers to stop undercutting premium rates to large corporates while taking into account the high severity of losses. G Srinivasan, Chairman and Managing Director, New India Assurance said that while reinsurance rates have been soft for insurers due to overcapacity, major losses from catastrophes may trigger a rise in reinsurance rates during renewal next year which in turn would lead to a rise in premium rates.
Kumar said that while insurers will be able to absorb the losses from motor insurance, premium rates for home insurance in the cyclone prone areas and weather based insurance based products will also see a rise.
Recently, the Insurance Regulatory and Development Authority cracked down on general insurance companies offering heavy discounts in the group insurance portfolio to retain corporate clients.
IRDA has asked general insurers to look at the burning cost (an insurance-industry calculation of excess losses divided by total subject premium) of each line of business and price their risk appropriately.
The guidelines are applicable to fire, property and group health segment which have seen high discounts being offered and will be enforced from January 2015.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.