Fire, engineering insurance premiums likely to move up by 60% in 2025

In 2024, the country was rocked by multiple natural catastrophes causing major losses to insurers and reinsurers, particularly in Gujarat and Nagpur thus affecting the 'free pricing' of insurance

In 2025, Indian firms may face higher premiums for fire and engineering insurance covers as reinsurers are likely to revise rates due to rising claims from catastrophic events and higher loss ratios, according to people in the know. 

The impact will be felt more by those who took policies in the May-Dec period considering the IIB pricing  reinstatement. They will face premium increases of up to 60 per cent, depending on the nature of occupancy. However, for those renewing their policies in January 2025, the increase will likely be more moderate considering there was no free pricing during Jan 24, in the range of 5-10 per cent,” said Hanmant Dudle, Head – large account practice (property & construction), Howden Insurance Brokers. 

According to industry insiders, large corporations in the country shell out anywhere in the range of Rs 5 crore to Rs 250 crore as premiums for fire insurance covers depending on the size and complexity of the operations. In 2024, the country was rocked by multiple natural catastrophes causing major losses to insurers and reinsurers, particularly in Gujarat and Nagpur. This affected the ‘free pricing’ of insurance premium rates in these lines. 

In April this year, the Insurance Regulatory and Development Authority of India (Irdai) de-notified policy wordings and deductibles in tariffs were notified by the Tariff Advisory Committee. 

Post the de-notification, the free-pricing era began in May 2024 wherein insurers were no longer bound to follow the prices set by the Insurance Information Bureau of India (IIB) and could set their own prices.

 

Previously, the premiums in fire and engineering insurance were based on data collected on impact of the catastrophic events, which then served as a benchmark for pricing.

 

Since de-notification, the premiums in these lines of insurance business have declined by up to 50 per cent in various occupancy segments, leading to higher discounts due to increased competition. However, due to the loss experienced in these lines of business owing to various natural calamities, both insurers and reinsurers are facing pricing pressures.

 

It has also put additional pressure on the combined ratio of insurance companies, industry insiders suggested.

 

“We have been seeing quite a fall and very heavy discounting (in fire and engineering lines) as far as premium goes. Now, this leads to a situation where the overall book for an insurer, and importantly the reinsurer, gets into an adverse area.  This is because there are more losses than the premium they are collecting. According to what we hear from insurers, reinsurers are pushing for correction in the pricing. There is talk about reintroducing the IIB rates,” said Deepak Madan, vice-president- special lines commercial lines, large account practices at Prudent Insurance Brokers.

 

Amid the shift back to IIB rates for insurance pricing, the premium rates for large corporations in commercial lines are likely to witness an increase of 15–60 per cent.