Heavy discounting stalls growth in non-life sector

The growth momentum in the general insurance industry has dropped by almost 50% in 2007-08.

A year of deregulated rates and huge discounting in premiums has seen a 12% growth during the year, against a 25% growth the previous year. The year saw gross premium underwritten of Rs 28,130.68 crore.

The four nationalised companies - New India Assurance, Oriental Insurance Co, National Insurance Co and United Insurance - together underwrote a premium amount of Rs 16899.49 crore in 2007-08, although their combined market share declined to 60% in 2007-08 from 80% two years back.

Meanwhile, the eight private sector insurers, with a 40% market share, grew 29% and garnered a total premium of Rs 11,231.19 crore.

Currently there are 10 private players operating in the general insurance space, including Tata AIG, Iffco-Tokio, Cholamandalam, and HDFC Ergo.

Two players - Future Genrali and Universal Sompo - have commenced operations later, so comparable data for these firms is not available.

Data with the Insurance Regulatory & Development Authority (Irda) shows that Reliance General grew the fastest - over 113% - during the year, while all the other companies grew in double digits, the fastest among them being Cholamandalam at 79%. The third-fastest grower, Bajaj Allianz, boosted gross premium by 33%.

While the industry was expecting a decline in premium growth, the 50% drop has been driven by what the industry observers call "reckless discounting" of almost 70-80% on fire and engineering premiums.

Covers for these two areas accounted for a major chunk of business for all general insurance companies earlier. But the free market rates from January 2007 have resulted in a 50% drop in fire and engineering premium rates and some decrease in motor own damage premium. The subsequent heavy discounting by companies of the lower premiums has hit growth in the sector.

Separately, standalone health insurance companies have grown manifold, records show.

While Star Health & Allied Insurance has grown 669% to collect Rs 173 crore premium in 2007-08 from a low base of Rs 22 crore, Apollo DKV, which commenced operations in November 2007, collected premium of Rs 2.98 crore.

Source: DNA