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Higher provisioning in third party motor insurance increases insurers’ losses

Although, the third-party motor pool system has been discontinued from FY12-13, general insurers have to make provisions towards losses suffered in the previous years.

May 17, 2012 2:49 IST | India Infoline News Service
Despite a positive growth in revenues, many general insurers had to make do with single-digit growth in profit or net loss during FY11-12. The reason for this is high provisioning for third-party motor pool and higher claims ratios in the group health insurance portfolio.
The Insurance Regulatory and Development Authority (IRDA) has increased the provisioning requirements in the third party motor pool recently. A CRISIL report published on 2nd May said that higher provisioning requirement in third party motor insurance segment by the insurance regulator is likely to increase losses incurred by general insurers by around Rs. 65 billion in the near future. It, however, noted the latest regulatory developments are structurally positive steps for the industry in the long-run. The report also said that the additional provisioning in the motor third party pool coupled with high claims in the motor third party and health insurance would impact the underwriting performance in the interim.
Private general insurer ICICI Lombard registered Rs. 4.16 billion loss in its books in FY11-12 due to the Rs. 6.85 billion provisioning made towards third-party motor pool, while HDFC Ergo General Insurance reported Rs. 290 million loss for FY11-12.
Bajaj Allianz General Insurance was among the very top few general insurers to record a net profit of Rs. 1.24 billion, despite making a provision of Rs. 2.64 billion in FY11-12 for motor pool losses.
Although, the third-party motor pool system has been discontinued by the IRDA from FY12-13, general insurers have to make provisions towards losses suffered in the previous years.
Although, motor insurance premium has been increased by 5%-20% since April 2012, the portfolio may still continue to bleed for many insurers.
While the retail health insurance portfolio is a profitable business with a 50%-60% claims ratio for many insurers, group health insurance is still a problem region despite the increase in premium.

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