One word will define non-life or general insurance in 2007: Detariffing. Beginning January 1, 2007, insurers have got near-complete freedom to price their motor, fire and engineering policies — three major business lines, which accounted for about 70 per cent of the non-life business in 2005-06. It’s a move that will shape the business in the foreseeable future, drive key numbers of insurers, and lead to significant changes in the way non-life policies are sold to consumers. Detariffing is expected to spark off a recalibration of premiums. So far, in a price control scenario, fire and engineering has been subsidising motor insurance, which has been losing money. Such cross-subsidisation is expected to reduce sharply — and eventually end. Once detariffed, the cost of fire and engineering will drop. Says M. Ramadoss, managing director, The Oriental Insurance Company: “Fire and engineering will come down by 20-25 per cent.” Prices will fall. Some insurers who have already got a nod from the regulator have given discounts ranging from 15 to 20 per cent in motor own damage and about 20 to 30 per cent discount in fire insurance. These discounts are across the board based on the insurers claim experience in the past years. Individual risk based pricing will take time and won’t happen in 2007. Says M.K. Garg, chairman and managing director, United Indian Insurance: “For own damage we are offering discounts up till 15 per cent and for fire it is up till 30 per cent. However, for individual risk assessment and discounts depending upon the assessment we don’t have sufficient data and it will take another three to four years before we can offer more nuanced rates.” This resetting of premiums is expected to rein in growth of non-life insurers in 2007. While total non-life premiums collected are on course to increase by 20-25 per cent in 2006-07, experts are projecting a 5-15 per cent growth in 2007-08 - a blip as premiums find their new levels - and the industry should be back on the high-growth trajectory the year after that. The one cover that will still be subject to price controls is third-party motor cover, though the way this risk is managed by insurers will change from 2007 onwards. Recently, the insurance regulator, Insurance Regulatory Development Authority (IRDA), increased third-party motor premiums by 50-150 per cent, and asked all insurers to not refuse third-party cover and collectively share this risk. The risk-sharing arrangement takes the form of a ‘motor pool’, which will comprise of all non-life insurers and will be managed by General Insurance Corporation (GIC). All motor third-party premiums collected by every insurer will go into this motor pool, but claim tabs will be picked up by insurers in proportion to their overall market share. This sharing arrangement is a point of concern for some. Says Rahul Aggarwal, Optima Risk Management Service, an insurance broker: “An insurer may have a small third-party portfolio, but if his overall share is huge, he will have to pay more.” Says K.C. Mishra, director, National Insurance Academy, an insurance think-tank: “The expenses of primary insurers are capped at 10 per cent, that of GIC at 2.5 per cent. However, due to lack of a robust IT system that can administer the pool at a national level, initial expenses would be around 30 per cent. So, insurers will have to resort to cross-subsidisation.” But National Insurance Company CMD V. Ramasaamy doesn’t agree: “We should manage to rein in our expenses within 10 per cent.” The hike in third-party motor premiums and pooling of resources is intended to turn around the motor portfolio, but it might take more doing, considering the claims-to-premium ratio was an ugly 250 per cent. In the long run, detariffing will see new policies and greater customisation, which will boost overall growth and penetration. In 2007, the focus would be on health insurance, especially small-value policies. Says Ajit Narain, chairman and managing director, Iffco-Tokio General Insurance: “We are targeting growth of about 60 per cent by launching more region-specific policies. We plan to increase the number of outlets in interiors from 60-100 by next year.” Adds Ramasaamy: “The focus will be on retail, especially health insurance and distribution through banks.” All in all, 2007 is going to be an action-packed year in the making.
