General insurance premium is expected to rise by 15-20 per cent in the coming months as part of the risk management by the insurers, especially in the wake of the anticipated increase in reinsurance costs.
Indian general insurance market may see further hardening of premiums going ahead as reinsurance prices may get costlier, Devesh Srivastav, Chairman and MD of public sector GIC Re has cautioned. Health and motor are the two major insurance segments in India with the non-life general insurance clocking a premium of Rs 1.02 lakh crore in the first five months of FY2024.
“We are putting our pricing approach on more sound technical basis and have tried pricing correction wherever we feel it is warranted. Restructuring is underway in terms of business portfolio composition and achieving pricing adequacy at contract level. The measures so far have focused on property and agriculture and in the next renewal, we are also touching upon other classes,” Srivastav said.
The rate increases in the international market have been unprecedented and has acted as a boon to GIC Re’s bottom line focussed approach. GIC Re will continue its profitability with growth approach and ensure price sufficiency in all its underwritings, Srivastav said.
Srivastav, who is ending his four-year stint at the third largest Asian reinsurer with a market share of 70 per cent this month end, said, “it is important that we write only keeping a bottom-line focus. A consistent endeavour has been made to improve the solvency ratio, loss ratio, combined ratio, increasing customer satisfaction and retention.”
“Our prime focus is to mitigate the underwriting losses and maintain the underwriting discipline. We are focussing on bottom line and the mantra going forward will be profitable growth,” GIC Re chief said.
Further, the rise in retail inflation has added to the overall costs for the insurers. Health expenses have also shot up with medical inflation rising across the board. Claims due to natural calamities have shot up globally, including India, in the last one year. Globally there is a churn following record level catastrophe losses during last 3-4 years and the situation was exacerbated by the pandemic. It is expected that the hardening rates witnessed during last couple of years will sustain for at least for some time, he said.
“GIC Re has done exceedingly well in restoring the solvency and to protect the balance sheet and shareholder’s fund. Its solvency today is 2.88 which gave me a sigh of relief. Our main objective is to maintain the solvency and control underwriting losses thereby improving our rating,” he said.
GIC Re has implemented the ambitious ‘Project Parivartan’, which will be a game changer for HR transformation. Similarly, the reinsurer is also going with full steam ahead for the Project SAP Hana, which will assist its operations vastly.
“A paperless GIC Re is our commitment to the environment, while also leaving a clear audit trail and making our operations more transparent,” he said.
Speaking about the competition in the Indian reinsurance market after entry of over 10 global reinsurers which have set up branches in the country, Srivastav said the Indian market is big enough for all the players. “With just one per cent penetration, we have only scratched the surface,” he said.
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GIC Re, with a global premium of $4.5 billion in FY 2022-23, has a long-term vison to maintain a ratio of 50:50 between its Indian and international business. “Today, we are 70:30. We will look to grow our international book with caution ensuring price sufficiency,” he said.
According to a Kotak Securities report, fire and other commercial lines are more profitable, especially for the larger players, due to pricing discipline enforced by reinsurers. Motor OD combined ratio has increased for most players in FY2023. The pricing pressure in the segment has not waned and in Q1 of FY24 as well, the trends are mixed. Motor TP (third party) combined ratio is lower than the OD segment for most players in FY2023. Motor TP combined ratio has dropped during FY2018-20 due to hike in TP tariffs. Combined ratio for the health segment has moderated to 92-156 per cent in FY2023 across players, likely due to pricing action taken by most insurers.
The impact of Covid-related claims inflation followed by high medical inflation led to gradual increase in combined ratio — up to 113-233 per cent in FY2022 from 54-187 per cent in FY2019).
