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State owned insurer to reorganise business
Aug 27, 2018
Government-owned United India Insurance is looking to reorganise its business by consolidating its presence in some "loss-making" portfolios such as group health. It also aims to enhance focus on liabilities and fire segments.
The restructuring is likely to be completed over the next 12 months, and will help shore up profitability, Mr KB Vijay Srinivas, director and general manager of United India, told Hindu Business Line.
“We are in the process of reorganising our businesses by right-sizing some unwanted and loss-making portfolios such as group health where pricing has been under pressure. We are trying to create a portfolio which is profitable,” Mr Srinivas said.
For the year ended 31 March 2018 (FY2018), the general insurer reported a net profit ofINR10.03bn ($144m), compared to a loss of INR19.14bn in FY2017, backed by significantly lower underwriting losses. The underwriting losses fell by almost half to INR25.42bn in FY2018, compared to ?4,444 crore in FY17.
Its gross premium income, driven primarily by motor, health and crop, grew by 9% to INR174.30bn in FY2018.
“Liabilities and fire, put together, currently account for about 7% of our total business; we would expect it to increase to 12% in the next one to two years,” he said.
Apart from reorganising its business, the company is also looking into rationalisation of expenses to improve profitability. It is in the process of identifying loss-making branches.
“We have around 2,100 branches spread across the country. We have set up a team to study loss-making branches. We are trying to assess how to rationalise them,” he said.
When asked about the status of the talks to merge the three general insurance companies – National Insurance Company, United India and Oriental India Insurance – into a single entity, he said: “The background work is on; an advertisement has been floated to call for expression of interest for appointing a consultant to look into the process of merger.”
Source: Asia Insurance Review
Govt's plan to provide universal health coverage to offer opportunities to insurers
Aug 24, 2018
The launch of universal health coverage is credit positive for India's insurers because it will help grow health premiums and provide insurers with cross-selling and servicing opportunities, according to Moody's Investors Service.
An article in yesterday's edition of Moody’s Credit Outlook notes that on 15 August, Indian Prime Minister Narendra Modi announced that the Ayushman Bharat, or National Health Protection Mission (ABNHBM), will launch on 25 September 2018. The AB-NHBM aims to provide more than 100m families up to INR500,000 ($7,100) of health insurance coverage each year and total INR50trn of coverage in aggregate.
However, 23 of India's 29 states have chosen to run the scheme as a trust model, which will diminish insurers' growth prospects.
Trust models entail government funds being allocated to a trust fund rather than to insurance premiums, and the trust fund making disbursements for claims, rather than insurers disbursing claims. When the trust fund is depleted, the government will need to provide additional funds. This differs from the insurance model, under which the premiums paid would be the maximum limit of exposure for the government and insurers take on all of the coverage risk.
States can chose a hybrid model wherein there is insurance protection purchased for claims in excess of particular limits.
“As a result, we expect that health insurance premiums will increase, albeit by only INR100bn for the additional coverage of 100m families (approximately 500m people). This is much lower than the current INR304bn of coverage for 440m.
Health insurance contributes around 23% of general insurance premiums and is one of the main drivers of growth for insurers. Health premiums have grown at a compound annual growth rate of 18% during the 2012-17 fiscal years. The fiscal year in India ends on 31 March.
“When the Indian government first announced AB-NHBM as part of the 2018 budget as a move towards universal health, we had expected that premium growth would accelerate as the government sought to expand healthcare coverage to India's 1.32 billion population. As of fiscal 2017, only 440m people were covered, and we expect that AB-NHBM will increase that number by 500m,” the report said.
Under the insurance model ,the increased coverage would have resulted in significant growth opportunities for insurers over the next two to three years, particularly for large healthcare and general insurers. Large insurers would have been able to benefit from their scale, resulting from superior claims management, strong provider networks and capacity to cross-sell other products.
“Although providing the health coverage as a trust model will diminish insurers' growth prospects, we still expect that insurers with scale advantages and track records of managing large insurance schemes will benefit from the health programme. Additionally, the programme will provide these insurers with opportunities to cross-sell other products and services to this new customer base,” the report added.
The writers of the report were Mr Mohammed Ali Londe, AVP-Analyst, Mr Antonello Aquino, Associate Managing Director, and Ms Sally Yim, Associate Managing Director, all three from the Financial Institutions Group of Moody's Investors Service.
Source: Asia Insurance Review
Govt's crop insurance plan turns profitable for insurers
Aug 21, 2018
The government-backed crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) has turned profitable in the first quarter of FY2019 (April to June 2018) after bleeding for two years. Better pricing coupled with low claims have led to underwriting profits in crop insurance.
Launched in 2016, the PMFBY loss ratio for most insurers was 140-145% in the first year.
The agriculture ministry’s data showed PMFBY had a sum insured amount of INR1,900bn ($27bn) and premium volume of INR243.5bn in FY2018. In the fourth quarter too, losses stayed in the range of 120-130%, reports Moneycontrol.
Since the crop cycle of kharif (monsoon crop) and rabi are seasonal, the first few months of calendar year 2018 saw losses on the rise again. However, towards May 2018 when the pricing stabilised and technology was being used in a widespread manner for crop-yield determination, the loss situation has changed.
For instance, the country's largest general insurer New India Assurance’s crop insurance portfolio had an underwriting profit of INR439.8m in 1QFY2019 compared to a loss of INR78.9m a year ago.
As the central government plans to increase coverage of PMFBY to 50% of total crop area in FY2019, insurers say that this will spread the risks across a wider base and will help lower losses further over the next three quarters of the current fiscal year ending 31 March 2019.
Source: Asia Insurance Review
Insurers stare at massive losses from Kerala floods
Aug 20, 2018
The general insurance industry is likely to receive claims of millions of dollars after record rains caused massive flooding in the south Indian state of Kerala.
The rains and resultant flooding have caused unprecedented loss of lives and property across the length and breadth of the state with economic losses expected to cross $3bn. The rains have also caused massive landslides across the hilly terrain of the state.
As per data released by the Indian Meteorological Department between 1 June and 18 August this year, the state received cumulative rainfall of 2344.84mm against a normal volume of 1649.3mm.
Motor insurance will bear the brunt of the claims as the state has one of the world’s highest density of vehicles on the road numbering over 11m, with close to 1m vehicles added in 2017 alone. The state also has one of the highest numbers of luxury cars registered anywhere in India.
Considering these figures and the total devastation across many districts, the magnitude of motor claims from across the state itself will run into millions of dollars. Over 300 lives have been lost so far and the number is expected to go up as many people were left stranded when the flood waters entered their homes and premises. The life industry is thus also expected to take a major hit.
There have been considerable losses to property and businesses across the state. Though most of the losses are uninsured, substantial claims can still be expected.
Entire luxury condominiums in cities like Kochi and Aluva were submerged by the surging flood waters. Industrial corridors also reported massive flooding and insurers can expect claims from damages to stock, equipment and machinery from factories and warehouses.
The state’s main international airport at Kochi has suspended operations till 26 August, as water entered the complex inundating the terminal buildings and warehouses around the airport premises. Losses here too could run in to millions of dollars as critical plant and equipment and goods stored in the premises have been damaged or destroyed. There is also a possibility that aircraft parked in the airport premises could have been damaged from the flood water.
The general insurance industry paid claims amounting to $200m for the Jammu and Kashmir floods of 2014 and $680m for the Chennai floods of 2015.
Source: Asia Insurance Review
India : Looming 1 Sep deadline makes motor insurers anxious
Aug 17, 2018
Insurance companies are concerned about the lack of clarity in pricing and shortage of time to implement mandatory long-term third party motor insurance for new private vehicles.
In July, the Supreme Court had directed that such cover be provided for new private vehicles with effect from 1 September.
Motor insurers also apprehensive about the adverse impact of the long-term third party policy on own damage cover, reports The Asian Age.
Under the Supreme Court's order, new private cars sold wef 1 September should have mandatory third party cover of three years while two-wheelers should have similar cover of five years.
However, the IRDAI has not yet announced the pricing, commission rates and other details of the cover.
“The pricing has to be determined on the basis of actuarial estimates, and with past data available with IRDAI, the regulator has to come out with the details. We are still waiting for the announcement from the regulator,” said R Chandrasekaran, secretary general of the General Insurance Council.
According to him, the greatest challenge for insurers will be on the logistics front. With only half a month left, insurers have to disseminate pricing details across all outlets which sell new vehicles.
However, insurers find that determining pricing itself is a challenge.
“The regulator revises third party premiums every year based on the loss ratios in each segment. When premiums are fixed for a longer term, the pricing calculations have to be done based on projections,” said a top official of an insurance company. The pricing can either turn out to be inadequate for the insurance company or expensive for the customer.
Usually, insurance companies combine both third party and own damage cover while selling the motor cover. Paying the entire cover upfront for three years or five years will be a burden for the customers. “If the yearly premium of a car is INR28,000, paying INR84,000 upfront will be considered a burden," he said.
In such a situation, there are high chances that customers may not buy own damage policy for all the years together.
Customers usually renew the motor cover, as the third party portion is mandatory. If the third party premium is already paid for the long term, customers may not bother to renew the own damage cover. This would mean significant loss of business for insurers because own damage accounts for almost 85% of the motor cover.
Industry players expect that the Court to extend the deadline for insurers to address all the issues related to its order. The Court had been concerned about poor compliance to requirements for mandatory third-party insurance of vehicles. One estimate is that only 60m of the 180m registered vehicles are insured. The majority of two-wheeler owners fail to renew their insurance policy after the first year.
Source: Asia Insurance Review
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