Rating agency CRISIL in a report has said that higher provisioning requirement in third party motor insurance segment by IRDA (Insurance Regulatory and Development Authority) is likely to increase losses incurred by general insurers to around Rs 65 billion in the near future.
CRISIL, however, mentioned that regulatory changes are structurally positive for general insurance sector in the long term. In March 2012, IRDA increased provisioning rates for the third party motor insurance segment. The additional provisioning of Rs 65 billion that this hike will necessitate will weaken the insurance industry’s underwriting performance in the interim. However, CRISIL expected that the annual hike in premium rates for the third party motor insurance segment will benefit the industry over the long term. Consequently, the underwriting losses in third party motor insurance segment, which has the most adverse claims performance, are likely to reduce over time.
Rupali Shanker, director, CRISIL Ratings, said, "We expect the industry's overall underwriting losses to exceed Rs 100 billion each in 2011-12 and 2012-13.” Third party motor insurance, which accounts for about one third of the industry's total claims, has been hiked by 5%-8% for private vehicles and 10%-30% for commercial vehicles from April 2012 by the regulator in a bid to meet the rising claims in this segment.
Nagarajan Narasimhan, senior director, CRISIL Ratings said, “The annual hike for the motor TP segment is a positive step,and will help check the industry’s mounting underwriting losses in this segment. While the current level of premium rate hike is inadequate to completely offset the significant losses in motor TP, we believe that underwriting losses in this segment will reduce over the long term on the back of IRDA’s annual premium rate hike.”