|The Union Finance Ministry has asked the general insurance companies (GIC) in the country to price the risk adequately. The GICs had been reducing the premiums since de-tariffication in 2008 in order to increase business volumes.
This comes in wake of the heavy losses suffered by the 4 state owned GICs- Oriental Insurance, United India Insurance, National Insurance, New India Assurance- in the last fiscal which amounted to Rs. 6500 crore. The move, if implemented would increase the premiums on health, motor, fire, property and other insurances by 25-80%.
The four PSU, which together hold 55% of the general insurance market and 50% of the motor insurance market made a combined loss of Rs. 15,000 crore in the last three years.
The GICs have reduced the premium rates on certain policies by as much as 90% since 2008, and at some levels these are unsustainable. Motor insurance premium have gone down by 40% since de-tariffication, while fire and engineering have gone down by nearly 50%-80%.
The major hope for the insurance company was investment income, but since the economic slump, that is also not working for them.
The insurers defend their decision of reducing price. "We have been offering discounts to procure business," said a senior official at a state-owned general insurance company," stated a senior executive at one of the public GIC, further adding increase prices might affect volumes.
Finance Ministry has been trying hard since the past few months to increase profitability of the insurers. GIC Re, the country's sole reinsurer has been asked to abstain from loss making segments like vehicles and group health.
"Non-life insurance companies must see that they maintain profitability along with the growth," said Mr. DK Mittal, Director Directorate of Financial Services (DFS).
The ministry in a release stated, "There is concentration of branches in major cities. We are suggesting there should be some rationalisation. They should go to unserved areas."