GIC Re hikes premiums for property insurance segment under fire portfolio

General Insurance Corporation (GIC Re), the country’s national reinsurer, has increased its premiums for the property insurance segment across all 291 occupancies which come under the fire portfolio, effective January 1, 2020. 

It had previously informed general insurers via a circular about its intention to raise premiums, said sources aware of the development.
 

GIC Re informed general insurers that it will follow the Insurance Information Bureau (IIB) rates for all occupancies. This means that the rates for fire-related mishaps, which are very low at present, will increase sharply.

“Premiums for public sector insurers may go up by 50 per cent and for private sector general insurers, it may rise 22-25 per cent,” said a source in the know.

GIC has informed insurers that they will have to follow the burn cost concept, which is basically the break-even rate. 

“GIC is saying that general insurance companies should follow the burn cost as minimum price. So, structurally, we are now moving to risk-based pricing. In the near term, when risk-based pricing is adopted, there will be occupancies where premiums will go up. There will also be occupancies where premiums will come down,” said a private sector general insurance executive.

“Overall, the industry has seen a lot of catastrophic events, risk events and there were a lot of losses. So, it was needed that the industry had a defined an approach to pricing. This is part of the maturity curve which was in any case going to happen,” he further added.

On an overall basis, premiums will increase for end customers. The impact of increase in premiums for individual insurers will be different, depending on the kind of risk they are participating in. However, there will be an overall increase in the rates and it will come close to the burn cost.

The current rates insurers were operating with had no benchmark. “Rates, which were very low so far for end customers, will go up now,” said Sanjay Datta, chief-underwriting & claims at ICICI Lombard General Insurance.
 

“The change in tariff will result in an increase in our premiums by 30 per cent. We collect around Rs 4,000 crore from the domestic fire segment, which is around 8 -9 per cent of our business,” said Reena Bhatnagar, general manager, GIC Re.

Last time when GIC Re increased premiums for eight occupancies, it had said the rationale behind it was that these lines of occupancies had claims ratio which were over 200 per cent. The entire fire portfolio is seeing a revision, with rates going up as much as 2-3 times, an executive of an insurance broking firm said.
 

The market has behaved in a mature manner than the last time GIC Re raised premiums. Some bodies have written to GIC Re and it has communicated that these are dynamic rates. 
 

IIB has been constantly taking data from the industry so as facilitate rate revision, said a public sector general insurance executive.
 

Since de-tariffing in 2007-08, there was competition among general insurers to get as much business as they can. In the process, they were not charging rates commensurating with the type of risk they were underwriting.
 

All the general insurers have treaties with GIC Re wherein the entire portfolio of risk is reinsured with the reinsurer. 
 

In India, GIC Re is leading most of these treaties and there are other reinsurers that further support GIC Re in these treaties.
 

With a revision in rates, GIC Re is basically saying that if the general insurers want to put the risk into their treaty, the minimum rate they need to charge should be as per the rate prescribed by the IIB.