Auto sales slump may hit motor insurance sector

The demand for automobiles has weakened, with eight of the country’s leading vehicle makers together registering a decline of eight per cent in sales in November compared to the year-ago period. This is expected to result in a dip in motor insurance business for general insurers in December.

Typically, the months of November and December see a boost in sales of the general insurance sector, with several vehicle manufacturers offering attractive discounts and deals for car and two-wheeler sales. However, sources said this year, the incentives offered by automobile companies didn’t seem to have paid off.

“After the festive season, December is the month we look forward to…to meet our fiscal premium targets, since year-end discounts are at their peak during this time. But this year, we received feedback the discounts haven’t been able to revive the sales of companies till now. This will have a direct impact on our premium collections,” said the general manager of a public sector general insurer.

High fuel prices, expensive finance and tighter lending norms, among other reasons, hit demand. Analysts say this situation is expected to continue. An automobile sector analyst at a large brokerage said apart from tighter lending norms, inflation had led to lower disposable income for the purchase of comfort products such as cars and two-wheelers. “Several auto companies have been betting big on December discounts, without realising consumers are not ready to purchase vehicles. Revival of consumer demand may only be seen next year,” the analyst said.

For general insurance companies, motor insurance, especially the third-party segment, is still an area of stress. Even after more than a year and a half since the third-party pool for commercial vehicles was done away with and the declined risk pool was set up, the woes of general insurers continue. Combined ratios for the motor insurance segment stand at 140-145 per cent. A ratio below 100 per cent indicates an insurer is making profits.

Inadequate price rises in the third-party motor segment and incomplete coverage of third-party insurance has led to these losses remaining high. Insurers said the claims ratio was significantly high, meaning companies paid 60-100 per cent higher claims than the amount of premium earned.

Meanwhile, officials in the sector are hopeful the last week of the year will be able to revive consumer demand for vehicles. Sanjay Datta, head of underwriting and claims at ICICI Lombard General Insurance, said one had to wait for 2013 to end to see whether there was a major impact on vehicle sales and the motor insurance business. Third-party motor insurance, covering the liability from third-party motor claims, is mandatory in India. The own-damage motor policy, which covers a vehicle and its owner from damage from any incident/accident, is optional.

Motor insurance is the largest contributor to the total premia of general insurance companies. It ranges from 40 to 45 per cent, in terms of proportion to total business.

According to data from the Insurance Regulatory and Development Authority, till September, the motor (third-party and own-damage) segment contributed Rs 16,051.61 crore to the total premia of Rs 38,718.18 crore.