Motor claims ratio improves in 2008-09

Last Updated: Sun, Jan 10, 2010 20:10 hrs

But general insurance industry sees deterioration

Insurance companies have managed to reduce the losses incurred on the motor insurance portfolio, that accounts for nearly half the business underwritten by them.

According to the latest data released by the Insurance Regulatory and Development Authority (Irda) in its annual report, general insurers lowered the incurred claims ratio to 88.84 per cent during 2008-09 from 92.31 per cent in the previous year.

Claim ratio is the proportion of claims incurred to the premium underwritten by them. In simple terms, it means that insurance companies paid Rs 88.84 in claims on a premium of Rs 100 that they earned.

The reduction in claims has once again pushed insurers, who avoided underwriting the motor business due to claims exceeding the premium income to once again look at the segment. One of the key reasons for the portfolio earning handsome profits is Irda’s decision to keep third party insurance outside the ambit. Now, the premium on the annual third party business, which continues to be fixed, is transferred to a pool and all general insurance companies share the losses.

Despite the improvement in the claims ratio for the motor business, the overall claims ratio for the industry deteriorated from 84.88 per cent in 2007-09 to 86.30 per cent in 2008-09.

A part of the reason for the increase was the dent in the fire and marine portfolios. During the last financial year, marine saw the highest jump in the claims ratio from 86.68 per cent in 2007-08 to 102.90 per cent in 2008-09 mainly due to high severity in the segment and steep discounts offered by companies to garner business.

As a result, insurers paid more claims on the marine business — which includes hull, cargo and offshore energy — than the premium they earned during the year.

Health claims improved marginally from 107 per cent to 106 per cent. "Insurers are trying to reduce discounts in health," said ICICI Lombard Chief Financial Officer Rakesh Jain.

Group health has been a bleeding portfolio for most insurers while most of them are making underwriting profits in retail health. Similarly, fire saw a slight increase from 68 per cent to 75.72 per cent. This segment has been highly discounted and insurers were offering 90-95 per cent discount.

During the last financial year, the underwriting losses of the general insurance companies increased to Rs 5,326.11 crore from Rs 3,899.49 crore in the previous year. However, there appeared to be a slowdown in the growth of underwriting losses in 2008-09 which stood at 36.58 per cent. The slowdown in growth rate was observed in the case of all public insurers. In contrast, the private non-life insurers continued to witness high growth in underwriting losses, which increased to 83.54 per cent.

Whereas net profit of the four public sector companies dropped by 81 per cent to Rs 426.81 crore as against Rs 2,205.48 crore. Oriental Insurance reported a net loss of Rs 52.66 crore, as against a profit of Rs 9.30 crore during the previous year.

National Insurance incurred a loss of Rs 149.21 crore though the same company reported a net profit of Rs 163.43 crore in the earlier year. Six private players reported losses during the year including Reliance, HDFC Ergo, Future Generali, Universal Sompo, and newly established insurers such as Shriram and Bharti AXA.

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