According to Dalip Verma,
managing director of Tata AIG General Insurance Company, presently, almost all
constituencies of the insurance market including consumers
(corporate as well as individual) and also insurance players are mooting for a
detariffed regime so that cross-subsidization of risk mitigation is avoided. Detariffication rates
has caused a virtual price war in certain lines of business
thereby resulting in an adverse impact on profitability. Loss ratios progressively worsen. Before we observe
on the impact of detariffication in India, let us look at the annual growth of
all private companies in India with Fire and All Other lines which is shown in
the line graph below.
We observe impact of detariffication on different
major classes of general insurance in India.
1. Motor - The impact of detariffications are Own Damage(OD) premiums
declined substantially by 20% – 60% and Third Party
Liability(TPL) is still under an inadequate tariff. The Motor TP Pool set up
for Commercial TPL policies have a poor loss experience as all the companies
have to participate and share in the losses in proportion to their written
premiums in the country.
2. Fire
- Free pricing leads to
a dramatic decline in the premiums for fire policies. According to the annual growth line graph above, the premium growth for
private companies fell from over 60% in 2004 to around negative 20% in 2008.
Fire policy was no longer able to cross-subsidize the results of other classes.
3. Marine
- Coverage price fell steadily after rate of relaxations were allowed.
Now, let us look into the comparison
of detariffication among Malaysia, India and China. In general, we can observe
that huge losses were incurred by insurers in India and China which led to
re-tariffication of general insurance after detariffication took place. In
contrast, since Malaysia is said to be more strategically and better placed in
the market with the Risk Based Capital(RBC) which has been discussed in the
previous post, Malaysia might have a different detariffication experience as
compared to the other two countries which underwent detariffication. The RBC
framework could reduce the intensity of price wars in Malaysia.
Furthermore, insurers from India and
China experienced huge losses due to unhealthy competition between the insurers
which continuously compete in price wars. On the other hand, Malaysia is more
likely to benefit from the detarification situation as opposed to the other two
countries. This is because appropriate precautions can be taken to encounter
the same experience faced by India and China.
REFERENCES
Coby, P. A. (2006, November). On
the Threshold: The Modern Insurance Market of India.
Retrieved 19TH
March 2016 from
Subramnian,
V. (2011, December 8). IMPACT OF DE-TARIFFICATION ON PROFITABILITY OF NON-LIFE
INSURERS.
Retrieved 19TH March 2016 from http://www.actuariesindia.org/GI/V.%20Subramanian.pdf
Retrieved 19TH March 2016 from http://www.actuariesindia.org/GI/V.%20Subramanian.pdf
Zanolini, L. (2015, June). 5th
MITBA CEO Conference De-tariffication in Malaysia –
The Road Ahead for
Our Industry. Retrieved 19TH March 2016 from
No comments:
Post a Comment