The finance ministry has asked the four state-run non-life insurers to raise premiums for property insurance cover.
In a letter dated 1st August' 2012, sent to the chairman and managing directors of the four state-run non-life insurers, the ministry has warned the insurers to stop competing with each other and raise premiums on property insurance cover. Earlier, the insurance watchdog, IRDA had pronounced the competition 'self killing race'. The letter said that after pricing was liberalised in year' 2007, the four insurers resorted to unhealthy competition among themselves to grab market share, as a result of which, some of the four insurers had been incurring huge losses in the fire business with consistent regularity.
The letter has suggested the insurers to raise the average premium per policy by 20 per cent in different sum insured bands (less than Rs 50 crore, Rs 50-100 crore, Rs 100-500 crore, Rs 500 crore and above), in such a manner that the combined ratio of the portfolio does not exceed 100 per cent and an increase of 20 per cent of total annual premium is achieved for each band of sum insured separately, and also, overall for the portfolio. Combined ratio means the total outgo on claims paid, administrative costs and commission paid to the broker.
Although, the ministry has suggested public sector insurers to raise premium rates on property insurance but also warned not to raise premiums on individual retail policies because it goes against the principles of financial inclusion.
Quoting to an example, the ministry said, “A stage has come when companies are offering a ridiculous level of 100 per cent discount on standard fire policies by not charging premium at all for the basic policy, but only for add-on covers,"
Over 60% of non-life insurance market share is owned by the four public sector insurers, New India Assurance, Oriental Insurance, United India Insurance and National Insurance.
The ministry has also asked the insurers to evolve common underwriting guidelines by August 17. They also have to integrate their respective data for each class of product/risk separately by end of December, so that a pricing policy can be determined more scientifically for the next financial year.