Fire, engineering risk premiums in for a free fall

Insurance Regulatory and Development Authority (Irda) expects premiums for motor own damage, fire and engineering insurance covers to fall once insurers are given the freedom to fix tariffs from 2007.

"Fire and engineering tariff are expected to fall after it is detariffed. Tariff rate for motor own damage is also expected to fall but that for motor third-party liability is expected to rise," said C S Rao, chairman, Irda.

At present, premiums for these businesses are fixed by the Tariff Advisory Committee.

For instance, in case of third-party motor insurance, each public sector insurer posts an annual loss of about Rs 500 crore and even premium increase to account for inflation is not allowed under the current regime.

Irda expects that it might be difficult to introduce free pricing in third-party motor insurance as this may lead to a sudden hike in the premiums.

Irda is expected to discuss the implications with ministry of surface transport and industry bodies.

Oriental Insurance Company chairman M Ramadoss said there was no hurdle for detariffing fire and engineering businesses.

"Motor (third-party) rates may rise by 100 to 200 per cent and because of this the detariffing may be delayed but Irda can place an annual cap of 100 per cent to restrict the rise," he said.

In case of motor insurance, the premium is expected to increase by 20-30 per cent while it could go up by 200 per cent for motor (TPL). Irda has asked insurers to submit by month end their suggestions on the roadmap for detariffing.

At present, 70 per cent of general insurance business is based on administered pricing where the rates have not been revised for many years.

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Times are a changin

Fire and Engineering premiums expected to fall by about 30%

Motor (own damage) insurance premiums expected to fall by about 20%

Motor (third party) premiums may rise by 100 to 200%

Irda may place a cap of 100 per cent increase per annum

Premium for GPA and group medical cover will go up as they are now subsidised by fire

Broker market to be stressed as they would be expected to work harder with thinner margins

Reinsurance commissions on treaties to decline from 30% to 15%