After life insurers, it’s general insurers who are knocking at the finance minister’s door, calling him to save the industry from a worsening situation.
Finance minister P Chidambaram will meeting general insurers in New Delhi on Monday to understand the problems of the industry.
The Rs 60,000 crore general insurance industry is in crisis as all its vital financial parameters are shaky despite the sector showing a growth of 20-25 per cent in premium collection. Its massive losses (over Rs 10,000 crore in 2011-12) are a result of cut-throat competition post detariffing period, regulated third party motor premium and losses in health insurance portfolio.
The industry has grown four times over the past 11 years but without much success in terms of penetration which is stagnating at 0.65 per cent. It has also seen multiplying underwriting losses.
As many as 21 general insurance companies were in the red in FY11 and FY12 owing to higher motor third party provisioning.
The insurance regulator, Irda, on the basis of a Supreme Court judgment, had asked general insurers to increase their reserve requirement against third party claims in 2011-12. Consequently, the insurers had to bring in higher capital and showed higher losses which would continue for the next couple of years.
Motor insurance which is a loss-making segment for the industry, contributes to approximately 40 per cent of the non-life insurance industry premium. In FY12, motor third party premium comprised 40 per cent of motor insurance premium.
As present, third party (TP) rates which are regulated by Insurance Regulatory and Development Authority are lower than the levels for the general insurers to break even.
“General insurers will urge the FM to remove the administered pricing for motor TP portfolio. They will also point out that under the proposed amendment in the Motor Vehicle Act, insurers have to deposit 50 per cent of the awarded amount with the court as against a maximum Rs 25,000 now which add to their problems,” said an insurance source.
The amendment also seeks to incorporate interest rate at 2 per cent above the bank rate which would increase the claim outgo,