Finance Ministry asks insurers to stop charging low premium

The finance ministry said that the insurers are focusing on increasing business even at the cost of incurring losses

August 28, 2012 5:11 IST | India Infoline News Service
In a letter to state-run general insurers, the finance ministry has asked state-run general insurers to stop from charging 'ridiculously' low premium from corporates and undercutting one another, according to media report.

The letter was addressed to the head of National Insurance, Oriental Insurance, New India Assurance and United India Insurance. The finance ministry said that the insurers are focusing on increasing business even at the cost of incurring losses, the reports added.

The letter said, state-run general insurers are advised to be “more cautious” and “prudent” in underwriting fire insurance business by creating a proper underwriting/marketing strategy so that these insurers can bring back their age-old status of a profitable segment of non-life insurance business. Fire insurance consists of over 50% of a general insurers' portfolio.

The ministry issued this directive to the four state-run general insurers after it observed that the insurers are "offering a ridiculous level of 100% discount on the standard fire policies by not charging premium at all for the basic policy but only for add-on covers".

The ministry added that all four state-run general insurers shall ensure that the companies stop from snatching renewals of business of other general insurers.

In May 2012, the finance ministry in a letter had asked state-run general insurers to increase premiums on health insurance, motor and other policies. The ministry has also asked the public sector insurers to stop undercutting each other to attract customers.

As the four non-life insurers reported a decline in their net profit despite growth in premium, the finance ministry asked them to restructure their premiums and turn around their loss-making branches. The net combined losses of the four insurers on group health insurance were estimated at Rs. 15 billion in 2011-12.

According to the ministry, these losses were due to the lack of practical underwriting and self-destructive inter-company competition among these four insurers. The instructions outline how can these companies bring down their expense ratio and reduce management expenses to improve profit.

The government, as a promoter shareholder, also advised public sector banks and insurers to make an action plan to turn around their loss-making branches. 


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