Non-life insurers' wait for two-digit growth to get longer

General insurers end FY14 with 12% premium growth; first quarter motor premiums to be muted

General insurance companies will have to wait for another three-four months for their premium growth to be back on double digits, due to a further slump in auto sales numbers.

On Thursday, Maruti Suzuki said its sales in terms of units sold dropped 12.6 per cent in April on an annual basis. This was the company’s biggest sales drop in 11 months.

Maruti and other top companies sold 163,070 units in the month, 5.9 per cent fewer than the 173,368 in April 2013. In March, these companies had seen an annual sales decline of 5.2 per cent.

A senior executive of a large non-life private insurer said, "The auto industry sale figures paint a bleak picture for the general insurance industry. Non-life premiums are linked to auto sales because the majority of our business comes from motor insurance."

On Friday, Tata Motors reported its lowest monthly sales in at least a decade in April. Its sales dropped by a staggering 36 per cent and it managed to sell only 7,441 units. The Mumbai-based company, which had reported sales of 11,570 units during the same month last year, dragged the industry's performance further down. The passenger vehicle industry thus reported a dip of 7.8 per cent in the reporting month marking a subdued start to the financial year.

With the festive season beginning from July, when vehicle manufacturers offer attractive discounts and deals for car and two-wheeler sales, industry players expect growth to be back.

For the year ended March 31, non-life industry saw a 12.2 per cent growth in total premiums. General insurers collected total premiums of Rs 77,538 crore for the financial year, compared to Rs 69,088 crore for previous fiscal. While public insurers saw a 9.8 per cent growth, private general insurers saw 15.3 per cent growth.

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

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.