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At a time when the government-owned general insurance companies are reeling under heavy underwriting losses, the General Insurance Corporation (GIC), fearing higher claims, has tightened the noose on these companies by offering lower reinsurance capacities, cutting commissions and putting in stringent underwriting conditions while renewing their contract. In some cases, the re-insurer has offered 50 per cent lower capacities than last year.
According to the Insurance Regulatory Development Authority (IRDA), GIC, being the designated reinsurer in the country, is required to reinsure 10 per cent of the total business written by the general insurance companies. There are also sectoral caps on how much risk general insurance companies can place with GIC for various lines of their business such as fire, industrial and marine risks, aviation, liability and machinery breakdown risks.
Public sector insurers place as much as 65-70 per cent of their risk with GIC, while private general insurance companies place around 60 per cent of their risk.
Global reinsurance companies such as Swiss Re, Lloyd’s, Munich Re, AIG and Asia Capital Re, are active players in India.
“Motor and health constitutes more than 64 per cent of the total general insurance business in India and both are loss making. The pricing does not reflect the risks, due to which the loss ratio is increasing in these companies. So, we have reduced our participation in the government-owned general insurance companies as our past experience hasn't been very good,” said a senior official at GIC.
This apart, GIC has put in place stringent underwriting conditions based on pricing practices and claims ratio while giving the support to these companies.
GIC is estimated to take a hit of around Rs 350 crore during 2010-11 on account of losses from the third party motor pool. The total losses in the third party motor pool is estimated to be around Rs 3,500 crore during 2010-11. As directive of the insurance regulator, GIC has to bear 10 per cent of the loss in the pool. GIC has also cut commissions paid to the insurance companies for the pass on their liability to the reinsurer.
“In addition, the profit commission, which we started last year as an incentive, has been rolled back in some cases,” the official said.
“Before offering its support, it a usual practice of GIC to evaluate the reinsurance portfolio. However, premiums in motor and health segments have gone down by 70-80 per cent than it used to be before detariffing, on account of stiff competition. There is a growing apprehension on the part of GIC that risks are being underwritten at very low rates. This has resulted in the conditional support,” said a reinsurance broker.
An official from the public sector general insurance companies admitted that GIC had been trying to put in some restrictive conditions while renewing the contracts.
“GIC is now looking at earlier claim history, pricing and risk management systems and the technology adopted before deciding on the extent of reinsurance support to be given. However, we have been able to get reasonable rates,” said an official at a state-owned general insurance company.
“In some cases, GIC has reduced the capacity they offered earlier specially on the inward reinsurance where companies reinsures a part of their huge risk with other insurance companies,” said another official from a public sector general insurance company.
-----EDITOR
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