Motor insurance premiums have to go up by at least 20-25 per cent over the next six months for the industry to become sustainable, said Mr K G Krishnamoorthy Rao, Managing Director and CEO, Future Generali India Insurance.
“It has come to that stage where high competition has made business unsustainable for some players. Everyone has to increase premiums. There is no other way. Plus, the claims ratios are also very high,” Mr Rao told Business Line .
The motor insurance premiums had come down sharply after the de-tariffing in 2007, when companies could price policies as per the market conditions. However, high competition and discounting among the 20-odd non-life insurers who offer motor insurance have led premiums to drop to very low levels.
“Already discounting levels are reducing, they are now at 40 per cent but should come down to 20 per cent,” he said, while adding that premium rates in North India are higher due to more theft and accident cases being reported from the region.
Motor insurance is very important for the profitability of non-life insurers, as it represents half of the total business of the general insurance industry. Of the remaining, health insurance (21 per cent) has the largest share, followed by fire and liability insurance.
Pricing the premium
According to rating agency CRISIL, incorrect premium pricing and fraudulent claims in both health and motor insurance could lead to estimated losses of above Rs 10,000 crore (2010-11) for the general insurance industry, up from Rs 5,900 crore in 2009-10.
Mr Rao said that the domestic industry also needs to include other variables such as the model and make of the vehicle and customer profile, while pricing the annual premium. This is followed in developed markets such as Europe and US, where insurance history and trends are widely available. In India, only the size of the engine and age, besides the geographical zone, is used to calculate premium rates.
“The insurance regulator has started data collection from all insurers four months back. This can be used for better premium price calculation. Customers' insurance history will also be available and there will be no false claims of the No Claim Bonus,” he said.
For third party motor insurance, the only segment tariffed in the general insurance space, the IRDA had recently announced higher premiums. For private cars and two-wheelers, the premiums will increase by 10 per cent, while for goods and passenger vehicles, the increase will be 68 per cent. This is expected to improve the underwriting performance of the industry, said CRISIL.