NON-LIFE INSURERS FACE TOUGH TIMES

Mumbai: While warning of tough times ahead for non-life insurers, rating agency Icra On Tuesday said of the three key business segments, two portfolios – motor own damage and fire and engineering – have seen a deterioration in the claims situation.

The biggest threat is going to come in the form of pricing pressure and the smaller players are expected to face the heat the most. The current pricing environment — where insurers are doling out discounts to grab market share – is also expected to contribute to hardening of re-insurance rates, Icra said in a report. But with low insurance penetration in the country, the agency is bullish on the sector’s long-term prospects.

The good news came from the health insurance segment, which accounted for 17.7 per cent of the risk underwritten by non-life insurers in 2007-08. While the business continues to be loss-making, post-detariffing, thanks to better risk-based pricing, the claims performance has improved.

While the own-damage part of the motor business, where the premium is not regulated, has seen an increase in claims, there is some good news on the third-party side, which had in the past seen claims that were two times higher than the premium earned from segments like commercial vehicles. With companies resorting to pooling, the balance sheet of the public sector companies is under less strain, the agency said.

The motor business accounted for 45.5 per cent of the non-life business in 2007-’08 and a part of the increase in the claims ratio of the own-damage segment was 20 per cent decrease in premium. Premium levels have dipped further this year. “Over the medium to long term, performance of the motor segment is expected to be supported by a more efficient claim settlement system and by the plugging of leakages,” Icra said.

In the fire and engineering businesses, which had traditionally enjoyed better claims, total premium collected by the insurers declined 10.6 per cent as premium fell. “The business has been supported by the higher risk cover purchased by corporate clients in a favourable pricing scenario. The claims performance for the fire segment deteriorated during 2007-08 and is expected to suffer further weakness during the current financial,” the report said.

Source: Business Standard