premiums on general insurance polices are concerned. A prolonged price
war may prompt state-owned general insurance companies to review their
aggressive pricing strategy after six months. "All efforts are on to
retain existing customers.
If rivals are offering dirt cheap premiums to my clients, I am being
forced to offer a 90% discount in some cases. If this continues, we
will be forced to review our strategy six months from now. Though,
results at the end of the year would give a better picture," said the
CEO of one of the four general insurance companies.
The portfolios of fire and engineering have witnessed premiums falling
by as much as 60-70%. "However, it is not wise to be chasing market
share in a falling premiums market. Emphasis should be on bottom line
as well. Having said that, we cannot afford to sit back and will
continue to pursue an ambitious growth in premiums," he added. Any
growth projections will be made after consulting the government, the
majority shareholder in these companies. If the incurred claims ratio
consistently rises beyond the comfort zone of a particular portfolio,
it is red signal for the board, he said.
Following a recent Insurance Regulatory & Development Authority (Irda)
directive, companies are mandated to make a quarterly disclosure of
their solvency margins. Now, at a time when they are offering huge
discounts, there is greater scrutiny on companies. Since insurance is
a capital-intensive business, companies have to set aside more capital
as they expand. At present, companies are required to maintain
solvency margins at 150% of the statutory requirement. While state-
owned companies may be sitting on huge piles of reserves, it may not
be true of some of the new private players. Some of these new
companies have been growing at more than 150% per annum.
Companies want the regulator to introduce complete detariffing by
allowing them to make changes to policies. Irda is of the view that
the general insurance industry is not yet prepared for complete free
pricing and is concerned about the changes being made to the policies,
especially in the retail portfolios of motor and health. "If the
regulator allows companies to come out with innovative policies, then
price will cease to be the only differentiator. Then, may be, the
market will settle down," he said.
The standard wordings have already been issued. Any deviations from
them will have to be approved by the regulator. State-owned companies,
hitherto inactive in retail portfolios of health and motor, are now
looking to these segments for expansion. Oriental Insurance Company
for instance, is putting in place a vertical to exclusively cater to
these portfolios. Private-sector non-life insurers increased their
market share to 40% on the back of motor vehicle and retail insurance
products.
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