Property insurance premia buck trend
Commercial vehicle (CV) makers will face a six-fold increase in net loss to Rs 6,000 crore this fiscal due to a 30 per cent decline in sales volume on an already weak base.
Tata Motors, Ashok Leyland, Mahindra and Mahindra and VE Commercial Vehicles together accounted for about 90 per cent of industry volumes in fiscal 2020.
The net loss, combined with a stretch in working capital owing to support extended to dealers and suppliers, could result in sizeable negative cash flows and thus ballooning debt, says a research note.
“While this may constrain credit metrics in the current fiscal, credit profiles of manufacturers will be supported by strong balance sheets and comfortable cash buffers,” ratings agency Crisil said in a report on Thursday.
CV-makers were already hit by new overloading norms and a slowing economy when the Covid-19 pandemic arrived, and sales volume had fallen 29 per cent in fiscal 2020.
In the first quarter of this fiscal, volume plunged another 85 per cent because of the pandemic-driven lockdown.
The resultant sharp slowdown in industrial activity has hard-braked sales of medium & heavy commercial vehicles , which account for twothirds of industry revenue.
The increase in premium rates and higher demand post-lock-down have helped property insurance premiums grow by 36 per cent between April and July despite the overall degrowth in general insurance premiums.
The gross direct premium collected under property insurance has grown by
36.3 per cent since the beginning of the fiscal to Rs 9125 crore against Rs
6695 crore in the same period of previous fiscal. Property insurance has bucked the general trend in other segments, which have either de-grown or grown in low single digits due to the pandemic.
The growth in gross property premium is mainly due to the hike in premium rates by insurance companies this year.
In the beginning of the calendar year, reinsurer General Insurance Corporation (GIC-Re) had increased its reinsurance rates for select occupancies and later for all the occupancies it was reinsuring. “GIC-Re had been asking the general insurers to follow risk-based pricing as the premiums were lower than the burn rate derived by the Insurance Information Bureau. IIB has been collecting the data of claims and premiums for the past few years,” said R Chandrasekaran, former secretary general of General Insurance Council.
Since the de-tariffing in
2007-08, general insurers have been charging lower premium rates in order to grab business. This competition among the insurers had led to unviable rates. However, after GIC Re hiked the reinsurance rates, the premium rates too have gone up.
Further, post lock-down, several incidents of fire mishaps were reported from different parts of the country as and when the factories were opened. This has increased the demand for property insurance, said Chandrasekaran.