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Published in Cafemutual on 4th February, 2017
PSU non-life insurers are incurring hefty losses while their private counterparts are minting money in the health insurance segment if the IRDAI’s annual report is anything to go.
The annual report shows that the net incurred claims ratio (ICR) of the public sector non-life insurers stood at 115% compared to 69% of their private peers in FY 2015-16.
Incurred Claims Ratio is the net incurred claims to net premium. Simply put, it is claims received for the premium paid towards insurance policies in a year; hence, a low incurred ratio indicates healthy growth prospects and higher profitability in non-life business. Typically, a ratio of less than 100 indicates that insurers are making money from a segment.
Kapil Mehta, Co-Founder, SecureNow Insurance Broker attributed this to inefficient underwriting practices at PSU non-life insurers. He said, “The key reason for the rising incurred claim ratio in health segment of PSU non-life insurers lies in indulging in risky business and making huge underwriting losses. On the other hand, private insurers are more efficient in carrying out underwriting which helps them make profitable price discovery.”
Overall, the health insurance remained an unprofitable proposition for the non-life industry. IRDAI data shows that the industry’s incurred claim ratio stood at 98% in 2015-16 as against 97% in 2014-15.
Among PSU non-life insurers, United Assurance has a highest incurred claim ratio of 122% followed by New India Assurance with 115% of incurred claim ratio in FY 2015-16. Similarly, a few private general insurance companies like IFFCO Tokio, Liberty Videocon and Magma HDI have recorded incurred claim ratio of over 100%.
On the other hand, Kotak Mahindra, HDFC Ergo and Cholamandalam have recorded a healthy incurred claim ratio of less than 50%.
It will be interesting to see how the PSU non-life insurers deal with this situation and improve their underwriting practices.