Public sector general insurers are likely to increase their motor own-damage (OD) premium owing to high loss rates. However, competition from private players and market share concerns are worrying them.
“In the motor OD segment, PSU insurers have been giving high discounts of even 70 to 80 per cent on the premium. As claims ratios are high, around 80 per cent levels, the margins are under pressure. Most of the PSU insurers want to bring down the premium and increase the pricing. They have taken cognisance of the high loss ratios and expressed their intent to rationalise the discounts,” a top official of a PSU insurer told FC.
“During our discussions with PSU general insurers, we found that most of them want to improve the premium. We expect they will improve their pricing in the segment as their claims ratios are higher than that of private players,” said Karthik Srinivasan, group head, financial sector ratings, ICRA.
The claims ratio of PSU insurers for the nine-month period ending December 2017 was 78 per cent and that of select private players reviewed by ICRA was 61 per cent. In the same period last year too, PSUs had a higher claims ratio of 85 per cent against 68 per cent of the private players.
Though motor OD premium is not regulated by Irdai, PSUs have been offering higher discounts in order to compete with the private players. On the other hand, private players have been relying on their service to grab market share despite higher pricing.
“The private players already have a higher market share in the motor OD segment and PSUs do not want to lose out their share by increasing the rates. Most of them are watching the competition to take a call,” said the official.
Even recently, the insurers had slashed the premium by passing on the benefit they received after Irdai capped the commission to auto dealers. Irdai’s MISP (Motor Insurance Service Provider) circular last November had reduced the commission to 22.5 per cent for two-wheelers and 19.5 per cent for four-wheelers from 30-40 per cent earlier.
According to industry experts, insurers are likely to restrict lower pricing to certain periods like festival times and they might also hike the premium in geographies where they have witnessed higher claims ratio. Usage of such analytical data to be selective in price hikes is also possible.