Rupee depreciation impacts travel insurance segment

General insurers may increase premiums if situation continues

Rupee, which has depreciated 22.8% since May 2013 has led to increased loss ratios for travel insurance segment. Travel insurance premiums are paid in Indian Rupees, while the claims are paid in US Dollars. Hence, there is a 20-25% rise in the loss ratios for general insurers. Due to this, companies are looking to increase premiums

"The sharp depreciation of rupee has impacted the current business scenario and has lowered demand for overseas travel. If the Indian rupee remains weak and the current business scenario persists, insurers will have to increase the cost of travel insurance to deal with the situation," said Rakesh Jain, CEO, Reliance General Insurance.

Travel insurance in India is usually purchased for overseas travel. These products cover claims arising out of unforeseen incidents including sudden medical costs, loss of baggage, passport among others. However, while medical costs incurred overseas are covered, individuals travelling abroad solely for treating an ailment is not covered for medical costs under a travel policy.

The premiums for an insurance policy with a sum assured of $200,000-500,000 would range between Rs 2,000-10,000 depending on the category of the product and the medical conditions that it covers. For senior citizens, the premium is higher owing to the increased medical risks associated with old age. Experts said that since premiums are low, a big claim can affect the books.

Sanjay Datta, head (underwriting and claims) at ICICI Lombard General Insurance said that nobody in the industry has anticipated the sharp fall in the rupee and hence could not factor in this scenario into the insurance premium for travel.

"In the long run, the premiums would have to be adjusted if dollar appreciation continues," he said.

If there any claim on a policy, it is paid in $. Earlier in May, when the value of Rupee versus $1 was 53.82 and if the claim was $50,000, an insurer had to pay Rs 26.9 lakh. Now if a company gets the same claim, with Rupee at 66.12 versus the Dollar, the outgo from an insurer would be Rs 33.06 lakh.

M Ravichandran, President – Insurance, Tata AIG General Insurance said that in travel insurance since premium is collected in Indian Rupees and claims are settled in Foreign currency, steep depreciation of the Indian Rupee has caused an increase in loss ratios.

"We as an industry are looking to work out modalities to adjust travel insurance premium to be in line with current exchange rate and would seek regulatory approval for the same. This would help in insulating the effect of exchange rate fluctuation on loss ratios.”

Industry estimates suggest that while in the last one decade, travel Insurance business has been growing at about 12-15% annually. However, penetration of travel insurance has been restricted to 10-20% for travellers going abroad, where insurers believe that there is a greater need to be insured.