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Insurance Q4: Claim losses haunt non-life players, margins spruce up life insurers’ numbers

May 15, 2018

For the insurance sector, the quarter gone by was a mixed bag in terms of earnings.

Rising claims in third party motor insurance and crop insurance hurt underwriting profits of general insurance companies in the March quarter. On the other hand, life insurance companies rode on protection products to report better margins and an improved profitability.

Underwriting losses, which refer to premiums earned versus claims paid out, are a true reflection of the financial strength of an insurance company.

If the underwriting loss is 150 percent, it means that for every Rs 100 collected as premium, Rs 150 was paid out as claim. If the figure is below 100 percent, it means that an insurer is making an underwriting profit.

Crop, health insurance drag down financials

Among general insurers, state-owned New India Assurance posted a net profit of Rs 335.96 crore for the March quarter. The insurance company's gross written premium increased 15.3 percent year-on-year (YoY) to Rs 26,554 crore.

However, the insurer reported an underwriting loss of Rs 2,525 crore for FY18 (compared to Rs 3,547 crore in FY17) driven by high claims in health and third party motor insurance. G Srinivasan, Chairman and Managing Director, New India Assurance, said that the focus will be to reduce the loss ratios by correcting prices further.

Private sector player ICICI Lombard General Insurance posted an 18 percent year-on-year rise in its March quarter net profit to Rs 211.87 crore. While the private insurer’s gross direct premium income (GDPI) increased by 10 percent to Rs 2,926 crore in Q4FY18, it posted an underwriting loss of Rs 9.6 crore for the quarter under review.

In the post-earnings conference call, Bhargav Dasgupta, MD & CEO, ICICI Lombard General Insurance, said that the underwriting performance was impacted by losses in the crop insurance segment, especially those arising from kharif crops. Crop insurance saw a 135 percent loss ratio.

Loss ratios plummet

Loss ratios in the crop insurance segment are estimated to be around 140 percent, which means that for every Rs 100 collected as premium, Rs 140 would have been paid out as claims. This is because crop insurance is closely linked to weather-based anomalies. Any unfavourable change in weather could result in either a shortfall in yield or destruction of crops.

Also, the practice of offering discounts to retain corporate clients has cost insurers dearly. Though industry-wide loss figures have contracted, there is still room for improvement.

Protection business improves margins for life insurers

On the life insurance front, protection plans have been a boon, helping companies improve their margins and overall profitability.

For instance, private life insurer HDFC Life Insurance posted a 40.4 percent year-on-year rise in its net profit for the quarter ended March to Rs 346.86 crore. The company's new business premiums for FY18 grew 32 percent to Rs 11350 crore on the back of a strong growth in the protection business.

Amitabh Chaudhry, MD & CEO, HDFC Life said that protection products tend to have higher margins and that was one factor that led to an increase in margins. On the products front, he said that the company has actively tried to keep the share of unit-linked insurance products (ULIPs) in its overall business under check.

Capitalising on an increase in premium income, SBI Life Insurance posted a 13.4 percent rise in its March quarter net profit to Rs 381.2 crore, compared with the same quarter last year.

The private life insurance company posted a 27 percent year-on-year rise in its annualised premium equivalent (APE) to Rs 8,540 crore in FY18. SBI Life said that this growth was driven by an increase in new business premium from individuals, generated through bancassurance and the agency channel.

Some insurers took a hit on their bottom line, particularly because of strain stemming from new business. ICICI Prudential Life Insurance's standalone net profit for the March quarter declined 16.6 percent year-on-year on account of higher strain from new business.

In an interaction with Moneycontrol, Sandeep Batra, Executive Director, ICICI Prudential Life Insurance, however, said that there was a 71 percent growth in the annualised premium equivalent (APE) of its protection business, resulting in the value of new business (VNB) growing by 93 percent to Rs 1,286 crore in FY18.

"Savings and protection are two distinct opportunities and we remain focused on them. However, the protection segment could grow at a faster pace given the under-penetration," Batra said.

New business strain refers to the acquisition costs incurred by an insurance company over and above the premiums collected by it, in the initial years of the business being written on its books.

Private insurers beat LIC in premium growth

In absolute terms, private sector companies beat Life Insurance Corporation of India (LIC) in terms of growth in new premium collection. LIC collected Rs 1.34 lakh crore of new premiums in FY18, 8 percent higher than in the last fiscal year. Private life insurers, on the other hand, collected Rs 59,314.55 crore in FY18, 17.1 percent higher than in FY17.

This was on account of the growth in both new business as well as a rise in the profitability of the business. New business premium grew 20 percent year-on-year. Renewals rose because of a rise in 13th month persistency numbers for private insurance companies. Detailed data for LIC has not yet been made available.

BSE looks to enter insurance broking business

May 14, 2018

Asia's oldest stock exchange, BSE, is planning to enter the insurance sector by applying for a broking licence. As per a Business Line report, BSE is looking to roll out its insurance distribution business by the end of 2018.

The news report quoted Ashishkumar Chauhan, MD and CEO, BSE saying that they are in the process of applying to the insurance regulator seeking necessary approvals for its venture into insurance distribution.

The stock exchange has entered into a joint venture agreement with Nasdaq-listed Ebix Inc for setting up a subsidiary company for the distribution of insurance products of life. This broking company will distribute products of non-life and standalone health insurance companies.

Here, while BSE and Ebix will hold 40 percent each in the joint venture company, the rest 20 per cent will be held by individuals or companies nominated by BSE or Ebix.

The company, called BSE-Ebix Insurance Broking has been set up, said Chauhan in an industry event in Kolkata on May 12.

Planning to buy health insurance? Here’s why family-floater plans are better

May 07, 2018

When it comes to health insurance, most families rely only on the group health insurance cover offered by their employer. But there are families in which each member holds individual policies under which he or she is insured for a small sum.

Given the rising medical inflation, individual health plans with a small quantum of insurance cover may not be sufficient. So it’s important to have a separate family-floater health plan to take care of your family in the event of a medical emergency.

What is a family-floater health insurance plan?

A family-floater plan is nothing but a health insurance policy for the entire family.

"It covers all the members under a single umbrella of health insurance. Here, the chosen sum insured is available for the entire family in case of a health emergency and its related expenses. This feature itself gives it the name 'Family Floater', as the sum insured floats among all the family members for use," said Mahavir Chopra, Director - Health, Life and Strategic Initiatives, Coverfox.

The logic behind purchasing such a plan is that there would rarely be an instance of the entire family falling sick and needing hospitalisation or other health-related services at the same time.

Why must one have a family-floater plan?

The sole reason for why one should opt for a family-floater health insurance plan is health inflation, which is currently rising at a rapid pace.

"Modern lifestyle, stressful working conditions and new age diseases have acted as a stimulus in raising the health care costs. If one wishes to protect his hard-earned income from the claws of health expenses, a floater health cover is absolutely necessary," Chopra said.

As is the case with most things, buying insurance in bulk is always better. A family-floater plan will cover the entire family under one policy and will therefore, cost less than multiple individual policies.

"One of the key benefit is the premium paid for a family floater plan will be lesser than opting for an individual plans for each family member," said Anurag Rastogi, Member of Executive Management, HDFC ERGO General Insurance.

Before buying a family-floater health insurance plan, one should consider the age of his or her family members. Present ailments, if any, must also be considered and so should the family's medical history.

"Compare various family floater plans and understand the track record of the company in terms of claim settlement," said Bhaskar Nerurkar, Head, Health Administration Team, Bajaj Allianz General Insurance.

"Apart from premium difference of individual and floater policy, one should also check for sub limit applicable, renewable conditions, no claim bonus and other continuity benefits, etc. before opting for a family floater policy," said Jyoti Punja, Chief Customer Officer, Cigna TTK Health Insurance.

Anurag Rastogi of HDFC ERGO General Insurance was of the opinion that one must consider pre-existing ailments of all family members before purchasing the policy, so that any member with a condition could be insured separately.

"One must also check for any pre-existing diseases, as it would be beneficial to cover a person with medical history separately, for reason that his or her claim might utilize the entire sum insured in event a major claim. In such cases, policies with restoration or regain benefit would be helpful to choose from," he said.

Difference between individual plans and family-floater plans

Although the features and benefits offered under individual health insurance plans and family-floater plans are largely the same, there are a few features that set the two apart. Coverfox's Mahavir Chopra explains:

Sum Insured - In a family-floater plan, the chosen sum insured is used by all the members who have been insured in the policy. In contrast, in the case of an individual policy, the sum insured is for the use of the insured member only. So, if a family-floater policy has a sum insured of Rs 10 lakh, and if a member makes a claim of Rs 1 lakh, there is still Rs 9 lakh left for the other members to use.

Coverage - An individual health insurance plan covers just one person, whereas a family-floater plan covers all the members of a family i.e. spouse, children, parents/parents-in law. Some new-age plans even extend the coverage to brothers, sisters and other family members under the same plan. A family-floater plan even covers newborn children who are only 90 days old or less, something an individual health insurance plan does not provide.

Premiums - Age determines the premium in both these kinds of policies. The age of the eldest member of the family under a family floater plan is what determines the premium payable, even though he or she may not be the proposer or policyholder. This makes it cheaper than buying a separate individual policy for each and every member of the family.

Govt kickstarts merger process for 3 PSU general insurers

Apr 26, 2018

The government has held preliminary meetings to set in motion the proposed merger process of three state-owned general insurers, sources said.

The proposal for merger of Oriental Insurance, National Insurance Company and United India Insurance was announced in the Budget for 2018-19.

A couple of meetings have taken place but these are preliminary in nature, sources said.

The roadmap for the merger is yet to be laid out by the government, they added.

Finance Minister Arun Jaitley in the Budget speech had announced that National Insurance Company Ltd, United India Assurance Company Limited and Oriental India Insurance Company Limited would be merged into a single insurance entity and would be subsequently listed.

The three insurers together collected a total premium of about Rs 44,000 crore in 2016-17 and their combined market share was close to 35 per cent in the general insurance industry.

The merger of these three state-run insurers will lead to the creation of a mammoth non-life company and is expected to be a major contributor to the divestment target of Rs 80,000 crore set for the fiscal year 2018-19.

The profitability of most general insurance companies including the state-owned ones has been under pressure owing to rising underwriting losses and higher claims.

In 2017, the government listed two state-owned insurers New India Assurance Company Ltd and General Insurance Corporation of India.

Manage risk with cyber insurance

Apr 26, 2018

The recent spike in occurrence of cybercrime across the globe has made it obvious that it is no more a question of “whether” but a question of “when”. The average cost to the organisation of these breaches is estimated to be close to $5 million. Multiple analyst reports place the average cost per breached record between $78 and $277. This cost is attributed to investigation and remediation activities, notifications to be sent to customers and other stakeholders, change in credit worthiness, reputation management, legal fees and settlements and any regulatory fines arising from the breach. Add to this the intangible loss to the brand value and the change in customer behavior in response to the breaches.

Organisations no more have the luxury of imagining that they will not be targeted by malicious hackers. Remember that the hacks need not just target the data an organisation holds – the compromised systems can also be used to launch an attack on third parties it interacts with. In such a scenario, the organisation may be held liable for the damage caused to the third parties. While a commitment to security is must, it is impossible to make any system 100 per cent foolproof. As such, it has become inevitable for organisations across industries and sizes to develop a good cyber risk management approach.

A sound cyber risk management plan will include increased cyber resilience through response and recovery, contingency planning, and as a last resort mitigation and transfer of financial risk through cyber insurance. The cyber insurance market is still nascent, and even in the markets where take-up for commercial property and liability insurance approaches 100 per cent, cyber insurance is purchased by anywhere between 20 per cent to 35 per cent of businesses based on the industry and size of the organisation. The variation based on size and line of business indicates that the low adoption rate is because of a lack of awareness in the market.

An analysis of cyber-attacks over the last three years makes it clear that an organisation’s defense is only as strong as the weakest vendor they interact with. Hackers have launched attacks on Fortune 500 companies using credentials they got off vendors like air conditioning and food delivery companies. The substantial difference in procedures and protocols followed at large and small organisations forces the larger player to fall back on cyber insurance as a way to transfer the risk arising from the weak links they have little control over. It is no surprise that while the take-up rates have increased in both small and large organisations, the gap between the two segments has actually increased over the last three years.

The very act of applying for a cyber-insurance incentives behavioral change in an organisation. Simple desire to get the coverage at as low a premium as possible drives the organization to conduct gap analysis. The very first ask from underwriters is that all significant activities are logged against individual users and therefore login to the system are secure. Additionally, they require organisations to have disciplined procedures for patching software and put in place an incident response plan.

They would also want to know if vendor networks are monitored regularly. Organisations would want to measure upto industry benchmarks like NIST framework and ISO 27001 as that would result in lower cost of insurance.

Further, once a policy is purchased, the insurer is invested in keeping the damage from any cyber-attacks at the minimum. This results in an additional layer of security through monitoring and rapid response services provided by the insurer to their policyholders.

While correlated risks arising from software vulnerabilities (like the “Heart bleed” discovered in 2014) and scalability of sophisticated attacks used by hackers makes risk assessment especially difficult, insurers have developed complex statistical models to facilitate evaluation of potential consequences arising from different damage scenarios. This allows the insured to work out the best contingency plans and ensure that the critical services are up & running at the earliest possible in case of a breach, keeping the consumer backlash at minimum possible.

While cyber insurance cannot protect an organisation against reputation risk or replace strong security controls and information security programs, it does act as a last line of defense and mitigates most of the financial risks arising from a breach. Further, it also incentivises cyber security discipline across the organisation.

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