General insurance companies should focus on cutting expenses, improving efficiency and designing better products to overcome their underwriting losses, rather than increasing prices, said insurance regulator Chairman Subhash Chandra Khuntia on Tuesday.
Most general insurance companies have been reporting underwriting losses for some years now and bank on other sources of income to run their business. Investment income forms a huge chunk of this.
“This is a shortsighted measure and we have to graduate ourselves to ensure that there are no underwriting losses. This doesn’t necessarily mean that the insurers increase the prices because improvement in efficiency can also lead to reduction in underwriting losses,” said the chairman of the Insurance Regulatory and Development Authority of India (Irdai).
“Similarly, expenses of the company can be controlled.”
But, he said, the regulator will not intervene in how insurers price their product. However if it feels the pricing is not right, then at the time of granting approval to the product, the regulator will point it out to the insurer.
“It’s an open market and we don’t want to regulate prices in a deregulated economy,” Khuntia said at the 21st Global Conference of Actuaries hosted by the Institute of Actuaries of India.
The chairman also urged insurers to conduct an annual review of their products and “weed out” the ones that are not being accepted by customers.
“Generally in insurance companies, the top three-four products make for 80 per cent of the business. So, is there a need for a large number of complex products that confuse customers and drag the insurers’ performance also?”
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According to Bhargav Dasgupta, managing director and chief executive officer of ICICI Lombard General Insurance, the first thing that suffers if an insurer doesn’t make enough underwriting profits is the claim service delivery to customers. This creates a negative perception of the industry and damages the reputation.
Secondly, if companies don’t make enough money they tend not to invest in people, distribution, and technology to the extent they could have. Thirdly, he said, companies don’t innovate in terms of creating new products.
The general insurance industry has registered a 14 per cent growth rate this financial year while the life insurance sector is growing at 10 per cent. But, the Irdai chairman said, both life and general insurance sectors have the potential to grow at a faster rate.
Also, he advised the life insurers to focus more on improving their persistency ratio. “The 13th month persistency (ratio) should be around 95 per cent but the industry average is 65 per cent and there are some companies whose figures are lower than that,” he said.
Moreover, Khuntia said, it is a good idea for every insurance company to go public and Irdai will nudge entities for this. The regulator is, however, not making it mandatory because smaller companies are yet to achieve the scale needed for going public. But ideally a company should achieve sufficient scale to list within ten years of its existence, he said.
On the IPO of Life Insurance Corporation, Khuntia said the proposal has not yet come to the insurance regulator for approval.