Indian companies will have to pay more for renewing their insurance policies as reinsurance companies have raised premium rates by up to 15% after burning their fingers in record number of natural catastrophes last year.
General Insurance Corporation of India, which is the designated national reinsurer, has decided to cut its exposure to domestic market, according to industry sources. Regulatory norms require insurance companies to reinsure 10% of their risk with GIC.Â
“Reinsurance rates have gone up 5% to 15% depending on the treaty experience,” said KG Krishnamoorthy Rao, managing director and CEO of Future Generali General Insurance. “They have either retained the ceding commission or reduced it by 10%.”
Ceding commission is the fee paid to the primary insurer by the reinsurer to compensate for underwriting expenses. On obligatory ceding of business, the insurance regulator has directed GIC to pay commission on lines of businesses like oil and energy, motor own damage and third party although other segments like war, marine cargo, fire and engineering, and marine and hull insurers are left to negotiate rates with GIC.
GIC has cut down on the treaty size and is insisting on excess of loss cover on proportional treaty, industry sources said. Even global reinsurance companies are imposing a limit on the maximum liability that non-life insurers can claim for a catastrophe.
Earlier, for every Rs 1, GIC offered reinsurance of Rs 5 to Rs 10. But now it has rationalised reinsurance to Rs 5. For instance, ICICI Lombard’s treaty has been cut by Rs 100 crore, reducing the gross automatic capacity of the Indian insurance company.
Liability limits for natural disasters is set at two-three times the treaty limit. The insurer and reinsurer for every reinsurance contract decide the treaty limit. The reinsurer then covers all the insurance policies coming within the scope of that contract.
“If we are not satisfied, we are not participating,” said a senior executive of GIC. “Reinsurance is a global phenomenon, so even if there is no major catastrophe in the domestic market, rates will go up.”
Companies who renewed their policy on Monday, or are in the process of renewing, are paying up to 20% higher premium. About 40% of the renewals take place on April 1.
According to a report Swiss Re, a leading global reinsurer, the total insured losses have doubled in 2011 compared with the previous year. The insurance industry worldwide took a hit of $108 billion from natural catastrophes and manmade disasters as against $48 billion in 2010. Claims from natural catastrophes alone reached $103 billion in 2011 against $43 billion last year.
