New products to cover pandemics are the need of the hour: GIC Re chief

In a Q&A, Devesh Srivastava, the CMD of India's largest reinsurer, also dwells on the moves made to cu losses in the crop segment and Covid-19 impact on his firm, among other things

The largest reinsurer in the country, General Insurance Corporation (GIC Re), does not expect a spike in claim payments from obligatory cessions due to Covid-19, despite the rapid increase in the number of cases. Devesh Srivastava, Chairman and Managing Director of GIC Re, in an interview with Subrata Panda talks about the impact of covid-19 on GIC Re, increase in rates in the property segment, changes they have made to cut losses in the crop segment and the need for products to cover pandemics.

Q: What will be the impact of the Covid-19-driven spike in heath claims be on GIC Re?

Ans: Currently most of the treatment for Covid-19 is at government hospitals, where the cost would not be too high. We are not expecting a steep spike in claim payments from obligatory cessions due to Covid-19. However, considering the fact that this is a pandemic and if it affects a higher percentage of the population, there could be higher claim payments. But looking at the lower mortality rate and the asymptotic nature of the patients, this higher claim payment too will not drastically inflate the claims ratio. Apart from obligatory cessions, we participate only on very select programmes from standalone health insurance companies, which again come with loss caps. As such, our claims from these arrangements will be of no great consequence.

Q: How much has GIC Re had to pay in claims because of cancellations and postponement in the event insurance space?

Ans: We did not write big-ticket events like the Olympics. We are not participating in any IPL risks. We will also not be having exposure to events due to pandemics. However, there could be some losses from Distributors Loss of Profit (DLOP) covers issued for released films. We are trying to minimise this as theatres have been closed due to the imposition of the Epidemic Disease’s Act and their re-opening is a criminal offence.

Q: Business disruption losses get triggered when there is a loss to property, due to which companies will not get coverage for losses incurred in the lockdown period. Given the current experience, is a pandemic insurance cover on the works? What role can GIC Re play in this?

Ans: Innovation always happens as a by-product of learnings. So definitely new products to cover pandemics are the need of the hour and will emerge. However, right now we are in the middle of the experience and on the learning curve, and it will take some time after the pandemic has subsided to come out with products addressing this risk -- once the complete picture emerges. This is an ideal opportunity for the industry to rise to the occasion and provide a much-needed cover to businesses. We, as reinsurers, will also be supportive of the industry’s efforts in this direction.

Q: Property insurance has been a drag for you, and youve raised rates in the segment across all 291 occupancies. What has the response been from corporates? Has there been any resistance from them?

Ans: Most of the large risk accounts saw an increase in premium under renewal policies due to the price correction in the property class of business. Ten years of de-tariffication saw prices decrease year-on-year to a point when insurance ceased to be a cost for most businesses. Expectedly, corporate clients were not too happy with the development and many requests were received from them for reconsideration of renewal premium. But we were able to convince our clients that the price correction was overdue under the present conditions and is also in line with global trends. The price increase merely represents pure burn costs for this portfolio, with no loadings for costs or profit elements. The clients represented that each risk should be rated on risk features and loss experience of each account per se, which we may consider in future. Some of them enquired for revised coverage terms to economize their premium budget which were partly considered on merits.

Q: The Company has also suffered in the crop insurance segment. How are you planning to manage this business and what is the reason behind stress in this space?

Ans: GIC Re has had mixed results in the past as far as the farm portfolio is concerned. Unprecedented weather and agri business results are directly proportional and it is evident from the past four years’ loss history. The crop losses were below 90 per cent in the initial two years of Pradhan Mantri Fasal Bima Yojna implementation. However, GIC Re’s book had taken a hit in the past two years, that is, 2018-19 and 2019-20, with close to 100 per cent loss ratio, which was again attributed to unseasonal hailstorms, excess rainfall, post-harvest losses, and allied perils in some of the major exposure states. GIC Re has been taking coercive measures like imposing differential terms and penalty for improper and inadequate pricing, active monitoring of crop cutting experiments and claim assessment. Moreover, to encourage cedants performing well, commission percentage has been improved and profit commission is introduced in the 2020-21 renewal. The company has introduced loss caps of 250 per cent in PMFBY and 200 per cent in WBCIS scheme.

Q:  Given the volatility in the market, has your investment income taken a beating in FY20? And, what is your strategy for FY21?

In FY 2019-20, GIC Re has earned investment income of Rs 6,786 crores as against Rs 6,130 in FY 2018-19. The figures at present are provisional. We will continue to increase our investment in long term government securities for stable and secured investment income. With the expected economic recovery from first quarter of FY 2020-21, we hope that stock market will get momentum. We expect that our equity portfolio will continue to contribute meaningfully to our investment income. The credit events are now behind us and have been already provided adequately as per Regulations. In coming financial year we see much lesser NPA and consequently lower stress on Investment Income. The Investment Corpus of GIC Re is increasing every year and we expect to achieve projected investment income in F/Y 2020-21 as well.

Q: Rates for life sector is set to increase. Do you think it’s reasonable given the circumstances?

Ans: There is no across the board increase in life reinsurance rates, although we hear that other reinsurers are going in for some price correction. We believe that the life rates have become quite competitive in recent years in Indian market and the going rates were not sustainable. However, GIC Re is reviewing rates only on a case-to-case basis and increasing rates on merits, based on results and loss experience of each account.

Q: Across non-life industry, the combined ratio for insurers have been on the higher side (>100%). How can it be brought down and how can insurers, including GIC Re, book underwriting profits?

Ans: Insurers have to underwrite with more caution and prudence, and with an eye firmly on bottom line. Every service comes at a minimum price and as long as primary pricing is not corrected, the situation will be grim. In a non-tariff market, the baton is in the hands of the insurers as the majority of the risks are underwritten by them and then ceded to the reinsurers as automatic capacities. It is the need of the hour for insurers to take ownership of their responsibilities and work with due diligence to ensure that the trust placed in them by the reinsurers remains firm and continues.

Q: The incurred claims ratio of the company was reported 99.1 % at the end of December 2019. What is the reason behind such a high claims ratio?

Ans: In 2019, there were many foreign inward business losses from property class along with the development of 2018 and 2017 NatCat losses. Also, there were unprecedented floods across most of India affecting the property and motor classes adversely. Agriculture segment too saw huge losses. In addition to these, there was a marked increase in risk losses both in severity and frequency in domestic and foreign portfolios apart from a general increase in attritional losses across classes of business.