General insurance industry poised for a shake-up
The freeing of tariff controls on fire and engineering insurance, which are among the most profitable areas in the general insurance business, from September is set to have a far-reaching effect on the entire general insurance sector, particularly health insurance, industry officials say.
In effect, profitable sectors that used to cushion bleeding sectors may get hit by competition, reducing the elbow room for insurance players to keep premiums low in risky areas such as health and car insurance.
Since the Insurance Regulatory and Development Authority (IRDA) regulates tariffs for motor insurance including the third party and owned damages, the insurance companies will not be able to increase the rates in this area.
Chief executives of general insurance companies feel that competition will drive down the premiums in sectors such as marine, fire and engineering, which were hugely profitable and used to cross-subsidise loss-making verticals like health and motor insurance.
Health insurance premiums could eventually go up.The biggest impact will be seen in health insurance (Mediclaim) particularly for the group health insurance, which is bleeding for the most of the companies. Some companies like Oriental Insurance increased the rate for Mediclaim policies for individuals last year and other public sector companies followed suit and increased rates earlier this year.
“In the case of group health insurance, the claim-to-premium ratio is around 120, which means a claim is Rs 120 against a premium income of Rs 100, which makes a case for a strong for upward revision of premium,” said M. Ramadoss, chairman and managing director of Oriental Insurance Company.
“With the entry of private players, the sector has become more competitive. As a result, profitable sectors such as marine, fire and engineering may witness a correction in prices,” said KA Somasekharan, CEO, Reliance General Insurance.
Ramadoss, however, said that there was not much of a loss in individual health insurance after the recent premium hike.