General insurance premium rates may rise from April

Premium rates for fire, engineering and motor policies may rise in the coming months as non-life insurance companies are anticipating reinsurance commission rates to fall when they come up for renewal in March.

Though reinsurers are worried about the steep discounts being offered by non-life players to get more business, reinsurance rates are unlikely to harden, insurance company executives said.

With steep discounts offered last year post-detariffing, reinsurance players are worried as companies to underwrite the same amount of risk but earn much lower premium income.

Commission rates are commission earned on passing on the liability to a reinsurer.

According to industry sources commission rates have come down from 45 per cent in 2007-08 to 30-35 per cent in 2008-09 and may fall further to 25 per cent during the next financial year.

Commission rates on facultative reinsurance (Fac Re), or reinsurance done on a case-to-case basis is around 10 per cent for very large deals. However, commission rates vary for different product segments.

The reinsurance rates have come under pressure in 2008 after detariffing of premiums. The premium collection by general insurers from fire, engineering and property segment which accounted for 30 per cent of the industry saw discounts of 60-80 per cent fell by more than 50 per cent.

“Every year there is a concern about reinsurance rates hardening up. Even last year, there was a huge concern after detariffing, but only the commission rates fell. The rates may go up for catastrophic covers such as risk arising from floods, storms and earthquakes. This will be a method of economising the cost,” said M Ramadoss Chairman and Managing Director Oriental Insurance Company. Generally, international reinsurers follow the financial year of and renew reinsurance treaties between March 15 and 31.

“The moment when reinsurer starts leaking, companies will start passing higher costs to customers. Already, companies are shifting their focus to retail. But if things continue like this then we may have to reduce the commission in April,” said Yogesh Lohiya Chairman and Managing Director General Insurance Corporation.

Insurance Regulatory Development Authority (Irda) has allowed Indian insurance companies to enter into a reinsurance arrangement with reinsurers that have a minimum ‘BBB’ S&P rating for the last five years.

An executive with a large private sector general insurance company said, “The rates should improve according to the risk and loss ratio, however, commission rates have fallen in the last couple of years and reinsurers will take a call in March.”