Budget 2018: Finance minister Arun Jaitley, in his Budget speech on February 1, said that a merger of the three public sector general insurance companies into a single insurance entity, which will be listed, was on the cards.
Budget 2018: Intense competition among public sector general insurance companies is all set to abate with the government pushing for the merger of National Insurance Company, United India Assurance Company and Oriental India Insurance Company. And this, market participants believe might lead to an upward correction in premium rates, especially in the mediclaim segment for retail investors. Finance minister Arun Jaitley, in his Budget speech on February 1, said that a merger of the three public sector general insurance companies into a single insurance entity, which will be listed, was on the cards. Senior officials in the industry suggest that the merger is likely to take effect in the next financial year. But market participants are hoping that premium rates might come down in a few segments even before this, as the three entities move to align.
Rakesh Goyal, director at Probus Insurance Brokers, says, “Competition will come down among the PSU insurers as they were competing with each other. There was, especially, huge competition in the small and medium enterprises (SME) insurance segment and this was taking a toll on their profitability. With the expected merger, this unfair competition might come down.” He also added that, there might be rates correction in retail mediclaim policies and rates might go up for group policies in health segment.
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Insurance brokers in the group health insurance segment pointed out that the public sector insurers had been very aggressive on pricing and this was hurting premium collections across the industry. Incurred claim ratio in the health segment for public sector insurers surged last fiscal, shows the data from the Insurance Regulatory and Development Authority of India (Irdai). In its annual report for 2016-17, Irdai shares data that puts incurred claim ratio of public sector insurers at 120.15% against 115.45% in 2015-16. The ratio for private sector insurers was 74.70% and 74.69% for the years 2016-17 and 2015-16, respectively.
Incurred Claim Ratio is a ratio of the total value of claims paid or settled to the total premium collected in any given year. In the past even government had warned public sector general insurers on their huge underwriting losses. With the merging of the three insurers and consequent listing, market participants feel that there might be more prudent underwriting going forward.
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Investors are also likely to frown on unhealthy numbers, thus exerting pressure to adopt more financially prudent pricing. Prabodh Thakker, chairman, Global Insurance Brokers said, “It’s the move in the right direction and it will bring quality practice rather than quantitative practice. Yes, unhealthy competition will be arrested in health and other segment as well.” In the year 2016-17, health was the second biggest segment in terms of premium underwritten by the general insurers after motor insurance. The data from Irdai shows that, 39% of the premium comes to motor insurance, while 27% of premium goes to health, with the remaining being drawn from others like fire and marine.