More premium cuts likely in fire, workmens compensation
Business Line, 14 July, 2007
"Due to competitive pressures there would surely be a further price cut in the new premiums. However, in the long run, prices for these segments are likely to move up and stabilise as the industry matures."
New Delhi, July 13 The non-life insurance sector could see a further reduction in premium rates of fire, engineering and workmen''''''''s compensation after September. This, however, could only be a short-term phenomena as in the long run prices are likely to move up and stabilise as the industry matures.
The move has been prompted after the Insurance Regulatory and Development Authority (IRDA) issued a circular on June 25 to all general insurance companies stating that the control rates on fire, engineering and workmens compensation insurance classes shall be totally removed.
Till now rates were subject to maximum limits of 10 per cent in motor and between 20 to 50 per cent in fire and engineering. But from September, the reduction or discount caps will be lifted and left to individual insurers judgment. So greater premium reductions are likely in fire and engineering as also workmens compensation which could be between 50 to 55 per cent,Mr Vinod Sahgal, Managing Director, Bajaj Capital Insurance Broking Ltd, told Business Line.
According to Mr Antony Jacob, Managing Director, Royal Sundaram Alliance Insurance Company, Due to competitive pressures there would surely be a further price cut in the new premiums.
However, in the long run, prices for these segments are likely to move up and stabilise as the industry matures.
Analysts also point out that customers will get better terms if proper risk management system is in place. For example, in the case of fire insurance, an insurer who undertakes necessary fire safety and prevention measures with fire detection and good suppression equipment, would enjoy far lower premium than another insurer with little or no fire safety infrastructure.
Topline may be hit
Though the industry has welcomed it, they feel that the topline of companies might take a hit because of rate reductions. They, however, are confident that buoyant auto sales can compensate for the reduction in premium in the other segments in the same way as it has happened in the last six months when detariffing was introduced.
What is happening now is that companies are being forced to give discounts and do not follow a flat discount system because of the number of players in the segment. Many companies are giving heavy discounts for the fear of loosing customers and this is leading to unhealthy competition in the industry. But after September we can have better pricing like what has happened in the case of marine insurance a decade ago,an official of a public sector general insurance company said.
But for new products in these segments customers might have to wait longer as companies are waiting for the regulators nod on product innovation.
At present, the regulator has allowed only rate variation within a specified band and kept the policy wordings and conditions untouched. Product differentiation is expected by January next Once the restriction on policy wordings and so on is removed, there would be considerable scope for insurers to introduce innovative products and value-added features, Mr Jacob said.
Another feeling is that for product innovation the underwriting skills have to be sharpened.