Now the Non-life insurance sector has almost completed about seven years since the privatization of insurance. The non-life insurance market is passing through a serious crisis due to stiff competition.
It is certainly imperative to be competitive in the global market but if the basic objective and purpose of the insurance are defeated, the insurance will not serve good for the general public.
In the initial stage of privatization, the private players to develop business indulged in unethical practices and such other nefarious activities to grab profit-making insurance products and discouraging the loss-making products. This has resulted in breaking all the barriers of the tariff regime and moving onto the open market era and each insurer had its terms, pricing, and conditions in respect of various products. Gradually, to attain a potential growth, the private insurers started amassing all other personal/retail insurance business including loss-making business portfolios.
With the IRDA (Insurance Regulatory & Development Authority) now dieting the market rates in respect of all the non-life insurance products, the premium rates of various profit-making segments are drastically reduced and status quo and loading pattern maintained for loss-making segments depending on the claims experience from January 1, 2008.
This has affected the insurance market and the turnover of premium in respect of property and engineering insurance have been reduced by more than 70% now. What is left out is the retail and personal insurance business, which has become now a costly affair? Each insurer has different pricing, terms and conditions and individual ratings in respect of such loss-making segments.
The figures depicted above show only a marginal growth of about Rs.1300 crores. It indicates that the basic objective of spreading the insurance is defeated vis a vis drastic reduction of premium rates in property and engineering insurance compensated with the drastic increase in the premium rates in the loss-making segments.
On the one hand, social objectives and commitments are violated by all the insurers whereas the profit-making segments will reduce the profits of the insurers by a drastic reduction in the growth in these segments. IRDA, the controller of the insurance market in India instead of controlling the insurance market and serving the general public directed all the non-life insurers that solvency margin should be maintained at 1.50% and if found less than 1.50% for the consecutive three years, such insurers will be debarred from continuing the insurance activities in India.
It has now become mandatory that each insurer should not forget to keep at least a small margin of profit for which they are working and each insurer has to prove to be very competitive. If this is the attitude of all the insurers in the current competitive scenario, the legality of the insurance is questionable.
Why insurance should be legalized?
Primarily insurance stands for its security. It is an intangible product and its tangibility assumes only at the occurrence of any losses/damage under the policy of insurance. Security aspects are doubtful then why to take insurance. The general public should have their self-insurance instead of taking a policy of insurance form the insurance company for their security.
Let us debate the pointwise study of the insurance products in nutshell in the competitive scenario.
01. As regards property and engineering insurance, premium rates are reduced by more than 70%. The result is when a natural catastrophe explodes, what will be the position of the corporate insured and/or other insured, whether reimbursements will be made, keeping the principle in mind “the contract of insurance is the contract of indemnity”. Unless Risk management techniques are applied to reduce the losses and/or control the losses, the fate of many insurers will be at stake.
On the other hand, Reinsurers are not giving adequate support if prices are undercut and not in line with the reasonable price for the risk. The reinsures have also cut down on the outgo of commission what they have been paying to the Indian insurers. The Direct Reinsurers are dictating the insurance market in India as the insurers are dolling out heavy discounts and reduction in premium rates in respect of property and engineering insurance business.
02. In respect of the loss-making segments, each insurer has different pricing, terms, and conditions to suit their business strength and potentialities. The insurers have become more commercial and hence each rupee spent is carefully examined by them. It is surprising that loss-making segments like Mediclaim (Health) insurance and Motor Liability insurance segments have hiked the premium rates more than 100%, besides compulsory excess have been introduced to deprive the general public of enjoying their health security.
It is no doubt that the general insuring public also should take maximum care to spend less on their Health hospitalization claims, but what they can do. The doctors and hospitals are dictating terms and there is no authority to challenge their medical fees. What will be the condition of the general insuring public, who cannot afford such highly inflated and exaggerated hospital expenses? Based on the above factors, is it not ideal for the general public to have their self-insurance?
Time has now come for the common masses to raise voice against doctors, hospital authorities, government to streamline the tariff rates of each hospital to meet with the basic treatment at a reasonable cost. If these persist, insurers have no choice but to hike their premium rates every year and time will come that nobody can afford to pay the premium for the Mediclaim (Health) insurance security.
On the other hand, a pool is constituted for Motor Liability claims settlement by the General Insurance Corporation as per the directives of the Government of India, and all the premium income and claims expenditure will be shared proportionately by all the insurers. The pool, in turn, scrutinizes the claims experience of Motor Third Party Liability, can hike the premium periodically.
All said and done, the future of the non-life insurance market in India appears to be bleak. What IRDA is up to and what is in their minds in respect of this insurance market, especially the non-life insurance business?
Time and again the message is spread all around, the insurance market is not a SATTA BAZAR. It is now better not to legalize the entire non-life insurance product if they are not in a position to do justice to the common masses. Besides, all the legislation and legal Acts are not necessary for such unreliable non-life insurance products. Their profitability should not ruin the nation as a whole.
It is high time that IRDA should take concrete steps to streamline the insurance market and salvage the nation and its people from further ruination and disaster.
“Global markets are for Global growth
And not for a selective section of the society
To grow and prosper
And Insurance is for the security of the nation and its people
And not just for profitability and survival of insurers”
Author
Mr.P.V. Sethu
Dy. Manager, New India Assurance. Co. Ltd., D.O., Baroda.
Published in The Insurance Times, March 2008
