General insurers to get listed, but what about your premium?

NEW DELHI: The Cabinet on Wednesday gave the go-ahead to five state-run, non-life insurance companies to list on stock exchanges. The government plans to reduce its stake in New India Assurance Co Ltd, United India Insurance Co Ltd, Oriental Insurance Co Ltd, National Insurance Co Ltd and reinsurer General Insurance Corp of India (GIC Re) to 75% from 100%.

What does this mean for the policyholder?

For a non-life or general insurance company to be viable in the long run, it’s important to make underwriting profits — profits made from the core expertise of the company, which is to underwrite and price insurance policies for claims and expenses.

“Underwriting profits are defined by a combined ratio, which is the sum of loss ratio and expense ratio for the insurer. A combined ratio of over 100% means the insurer is making underwriting losses. Other than two private insurance companies, no one is making underwriting profits,” said Shashwat Sharma, partner and head of insurance at KPMG India.

As reported by Mint, Oriental Insurance and United India Insurance reported a loss of ₹382 crore and ₹428 crore, respectively; National Insurance and New India Assurance reported a profit of ₹128 crore and ₹478 crore.

So how will listing help? It will put the focus on underwriting profits. “Listing improves transparency. Analysts that evaluate these results will be essentially looking for underwriting profits or potential,” said Kapil Mehta, co-founder, SecureNow Insurance Broking Pvt Ltd.

A focus on underwriting profits may mean price correction. “State-run companies have a majority of their business coming from group business. In health insurance for instance, their group business is under-priced. So in order to make profits, insurers will have to increase their premiums,” added Mehta.

Even the retail business may feel the impact. “The claims ratio (claims paid divided by premium earned) for retail health is 95%, whereas for group it’s 120%. The pricing in retail health is much better but if you compare it with the pricing of the private sector, which has a claims ratio of 60%. There is scope for a price correction even in retail,” said Sharma.