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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



India: National Health Protection Scheme to be launched on 25 Sep

Aug 16, 2018

Prime Minister Narendra Modi yesterday announced his flagship project, Ayushman Bharat or National Health Protection Scheme, will be launched on 25 September.

"The healthcare initiatives of the government will have a positive impact on 50 crore Indians," Mr Modi said, announcing the scheme during his Independence Day speech yesterday.

Dubbed ‘Modicare’ and touted as the world’s largest health protection scheme, Ayushman Bharat aims to cover over 100m poor families (about 500m beneficiaries) and provide health cover of up to INR500,000 ($7,090) per family per year. The scheme was initially announced by then finance minister Arun Jaitley in his Budget speech in February this year.

Premiums under the medical insurance scheme will be paid for by the government, shared between the central and state governments in proportions per Ministry of Finance guidelines. The scheme may be implemented by buying group cover from insurance companies or in a trust model.

As many as 23 states (out of a total of 29 states and seven Union territories) are understood to have decided to adopt the trust model, reports Times of India. This indicates that there will be limited opportunity for insurers.

Mr G Srinivasan, who stepped down as chairman of New India Assurance last month, said, “A trust, which will get the money allotted for the premium, will take over the job of the insurance company. If there is a shortfall in funds allocated, the government — probably the state government — will have to make good as there is no entity that takes on the risk like in an insurance model.”

However, a handful of the 23 states are adopting a hybrid model where they would buy insurance for a small amount of up to INR50,000 per family as against a cover of INR500,000 under the scheme.

Source: Asia Insurance Review



India : Govt's crop insurance plan turns profitable for insurers

Aug 14, 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



India : Life and non-life markets to soar in next decade

Aug 13, 2018



Both the life and non-life insurance sectors in India can grow in excess of 15% a year for the next 10 years, according to Mr Santosh Singh, Head of Research at Haitong Securities India.

He said that India is in a growth phase with one of the largest consumption bases in the world and its economy can remain in the growth phase for may be 10-15 years.

He told The Economic Times: “My expectation is we might see around 20% sort of GWP growth for the industry for at least five years and may be 15% for at least 10 years. That should be the number we should be looking at for the general insurance industry.

He added that there are two or three stories playing within general insurance. One story is penetration, and the second is that a lot of general insurance business is dependent on GDP growth and capital formation.

“If that remains slow, then a big portion of the general insurance industry will not grow faster,” he said. He added, in his personal view, that within general insurance, it is health insurance which is going to grow much faster than any other class of business. In health insurance, where there is a huge under-penetration, there is likely to be a fast growing segment.

He said: “On the life side, a lot is dependent on savings...but again, there is huge under-penetration on the annuity and morbidity sides of the business.”

Source: Asia Insurance Review



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