This might be the message to the people who have taken insurance for their domestic losses. Consumer may have to bear higher loss when they take any insurance policy for their losses. Insurance regulatory and development authority have given permission to domestic insurance companies to fix their compulsory deductibles. Compulsory deductibles are the amount which a insurer reduces from the claim amount. This means that consumer would bear that amount of loss. Till 2007, these deductibles were prescribed by the regulators. Though, after free pricing, premiums went down because of the competition, the deductible remains same.
Currently, maximum deductibles are less than 10 lakh. In the recent past, the general insurance industry has seen a lot of new players in the market. It has significantly increased the competition among them. This is not going to be the easy for companies to increase the deductibles because then consumers will move towards that service provider who offers less deductible. Market is going through a very tough time. These low deductibles contribute to their higher underwriting losses. Claims ratios for almost all the PSU insurers are high which indicates negative underwriting margins. Underwriting margin is the difference between claims incurred and expenses to process them and earning from premium.
This move is to help insurers to reduce their underwriting margins. Underwriting losses of around Rs 4292 crore have been reported for FY 09. Reducing underwriting losses will help in preserving company’s capital. Premiums for fire and engineering are down by at least around 80 percent. Private and PSU companies have started considering this option of reducing deductibles. Insurance companies are saying that there would be a rise in premium rates. Reinsurance market is also becoming more stringent than before and to manage rising underwriting losses and these factors, companies are compelled to increase the premium rates. But due to tough market competition, these things won’t happen in immediate future. At first sight, this move may look against consumer’s interest but it is very important to preserve industry to help consumer. Healthy companies would be in a better position to offer better products and services to the customers.
Indian market is growing and financial situation is still tough, so to maintain the growth, all companies need healthy financial status. It can’t be achieved with the current trend of growing underwriting losses. Even to survive in a tough, competitive market condition, companies need to maintain their capital. In the coming days, we may witness few more changes in the way general insurance is done in India.
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