Chennai: Even though a case has been filed in the Telangana High Court by Laurus Labs Ltd pleading scrapping of General Insurance Corporation of India's (GIC Re) move to accept fire insurance risks at a stipulated rate, majority of primary insurers have aligned premium rates with that of the reinsurer, said industry officials.
"We have implemented the 'burning cost' rate as suggested by GIC Re. We have also got our reinsurance treaty contracts placed. We are aligning with the reinsurer prescribed rates," S.S. Gopalarathnam, Managing Director, Cholamandalam MS General Insurance Company Ltd, told IANS.
Most industrial insurance policies will become effective from April 1.
The GIC Re had told the primary insurers that it would accept reinsurance placement only if their clients belonging to certain industries were charged a premium rate on 'burning cost' basis, as suggested several years back.
The burning cost rate is calculated by dividing claims paid by sum insured.
For a long time, the primary insurers have been offering the fire insurance policies at a heavily discounted rate, with rebate going up to 97 per cent of the burning cost rate arrived at by the Insurance Information Bureau of India (IIB).
But GIC Re has now decided to stop accepting reinsurance contracts at unviable rates owing to increasing losses. The move, in effect, has forced primary insurers to increase rates many times -- in some cases by nine times.
It is against this that Laurus Labs has moved the court. "The issue is between primary insurer and reinsurer. The company can have no grouse against GIC Re," an industry expert told IANS.
"Fire insurance premium rate crashed soon after the insurance regulator abolished the administered pricing mechanism. Both private and public sector insurers reduced their rates to attract business," said R. Raghavan, former Chief Operating Officer of ITI Reinsurance Ltd.
"In November 2014, the insurance regulator issued an advisory nudging insurers to either adopt IIB, or adopt their own internal burning costs if any, or in case of deviations from both, report to their board of such exceptions and periodically inform board reactions to the regulator," Raghavan said.
He said though the reinsurance sector has been opened up and there are several foreign players, GIC Re is a wholesale market provider.
According to Raghavan, GIC Re move to discipline the market may be due to factors like, its stock price trailing the listing price, higher combined ratio (claims outgo and expenses upon the premium revenue) and the government decision to merge three general insurance companies and take it public.
After the listing of GIC Re and New India Assurance, the government must be worried about listing of insurance companies.
"Foreign reinsurers must be smiling impishly at this development, as many of them shied away from the Indian market once the tariff structure was dismantled. If GIC Re wants to tame the market, Boy, it is heave a-hoy for them also," Raghavan remarked.
"The General Insurance Council, the industry body, can play a balancing role in exploiting the IIB output and putting in place a market pricing committee with sufficient teeth to punish violator," Raghavan said.
"It was with this objective, inter alia, the council was morphed into a self-regulatory organisation (SRO) under the last amendment to the Insurance Act in 2015," Raghavan said.
Reacting to the view, R. Chandrasekaran, GIC Secretary General, said: "The council has no role in fixing risk-pricing. It's underwriters' (primary insurer) responsibility."
"The council has no role in areas that will stifle competition. Internationally also industry associations will not get into aspects of commercial contracts," Chandrasekaran told IANS.
"The General Insurance Rating Office (GIRO ) in Japan has been playing such a mediatory role for the past several decades. After all, if market follows an agreed code of conduct, no supplier can whiplash," Raghavan said.
According to industry experts, GIC Re tried to bring in the discipline last year, but the primary insurers failed to comply.
Chandrasekaran said the one option for primary insurers is to approach GIC Re to accept a risk at a lower rate on a case-to-case basis.
Meanwhile Usha Ramaswamy, GIC Re Director and General Manager, told IANS: "By and large the renewals have been happening at the burn cost rate. Some have taken reinsurance policies for short period, say for three months. Full picture will be known in two-three days."