The government on Wednesday pulled up state-run insurance companies over mounting losses, and asked them to reorganise their loss-making branches and open offices in small towns by the end of this month. It warned the insurers that growth in their top line cannot be at the cost of the bottom line.
Finance Minister Pranab Mukherjee, in a meeting with the heads of public sector insurance companies, expressed concerns over their underwriting losses that stood at Rs 6,134 crore in 2011-12. “I have few concerns in the general insurance non-life sector, where the insurance market is structurally challenged in terms of profitability,” he said. “While the emphasis on growth in premium is understandable, what is concerning is the underwriting losses.”
The combined ratio (claims and operating expenses as a percentage of premium income) for four non-life PSU insurers — National Insurance Co, Oriental Insurance Co, New India Assurance Co and United India Insurance Co — is in the range of 120-129 per cent. India is the only country in Asia with a combined ratio of 105 and above consistently during the last five years.s.
The finance minister said the overall profitability was “clearly driven” by investment income, with continued deterioration in the core business of premium underwriting.
The ministry had recently issued guidelines to these insurance companies to turn around the loss-making branches and increase premiums on certain products. It had also asked the public-sector insurance companies to stop undercutting each other to attract more customers.
“The finance minister was concerned about how to manage losses,” Financial Services Secretary D K Mittal told reporters after the meeting. LIC and general insurance companies have been asked to open offices in tier-IV towns by June 30, he added.
The companies were asked to immediately take the e-governance route and ensure online availability of all their policies — both new and renewal.
The minister also highlighted the need to ensure that claims are settled in the shortest possible time-frame..
Asia, excluding Japan, is expected to contribute nearly a quarter of global growth in general insurance market in the next five years.
Within Asia, India is touted to be the fastest-growing general insurance market with an average expected growth of 15 per cent.
Insurance companies, in their discussions with the finance ministry, raised issues related to service tax, income tax and motor pool.