Kerala needs to go a long way in insuring life & assets

Reinsurance premium likely to harden due to floods claims


KOCHI: The fact that the initial estimates of non-life insurance claims from the recent floods that ravaged Kerala and dealt a body blow to its economy, could add up to only about Rs2500 crore should be an eye-opener to the state that boasts an economy that is worth Rs7.73 lakh crore or Rs7.73 trillion.

There are views that the claims could grow to as high as even Rs4500 crore or more, but the prefers to stick to the market estimates of Rs2500 crore of which the motor insurance alone could account for about Rs1000 crore.

[Addressing media, AV Girija Kumar, Chairman of General Insurance Public Sector Association (GIPSA), the coordinating body of all state-run general insurance companies and the CMD of Oriental Insurance Co Ltd, said four public sector insurance companies alone anticipate claims of Rs4,500 crore.]

The total claims include the claims that have originated from some manufacturing units and some other business entities, suggesting that all other claims including from the loss of property will be negligibly small.

“This points to the ‘ugly truth’ that despite its high level of literacy & health, and good general awareness, the state leaves much to be desired in insurance penetration,” said a top official with a state insurance company.

Importantly, only 20 per cent of the motor insurance is under Own Damage (OD), and only these OD policy holders can stake claims for the damage caused to their vehicles.

The total premium from non-life insurance in Kerala is estimated to be about Rs5000 crore (a rough estimate) and this could work out an insurance (non-life) penetration of a ‘poor’ 0.65 per cent (total premium as percentage of total GDP).

According to a recent Swiss Re sigma report, life insurance penetration of India has improved slightly from 2.72 per cent in 2017 to 2.76 per cent in 2018. Non-life penetration was at 0.93 per cent in 2018 compared with 0.77 per cent a year ago.

There is a price to be paid by the insurance companies. The re-insurance premium for the forthcoming season is likely to burn the fingers of primary insurers with presence in Kerala as the heavy losses from the recent floods could drive a hardening of reinsurance premium, according to reliable insurance sources.

“Since the large claims from our policy holders are due to a particular cause in a particular area and during a particular period, we will be compensated by our reinsurance cover to a good extent through the “Excess of Loss” cover.”

Mostly, the reinsurance cover is bought from the European and London market. But there are inward and outward deals in reinsurance happening among the primary insurers too. “Our plight is that though the reinsurance premiums are likely to be raised by our reinsurers, the peculiarity of our markets doesn’t allow us to pass it on to our policy holders in the form of increased premium and this will certainly dent our bottom line in the coming years.

The four public sector general insurance companies – New India Assurance Company, United India Insurance Company, Oriental Insurance Company and National Insurance Company are said to have together absorbed almost 80 per cent of the claims from motor insurance spawned by the Kerala floods, where the total claims could add up to Rs1000 crore or more, according to sources in the market.

Though the private insurers are not dominant players in the market, the companies such as ICICI Prudential, HDFC Ergo and Bajaj Allianz have also been hit to the extent of, say, about Rs200 crore or so, according to a reliable estimate and for which there is no official confirmation yet.

Property insurance though is not as big a business as motor, the public sector companies, especially, United India Insurance Company is said to have taken a hit to the tune of about Rs300 crore.

Though these numbers have been arrived at with the information gathered by brokers and sources close to these companies, the officials were not willing to share the individual company details of claims with

Sources close to the PSU companies said most of the motor insurance in Kerala region, about 80 per cent, is done in third party insurance (TPI), which by definition doesn’t protect own damage and hence never adds up to the Rs1000 crore claims.

“Our request to the Kerala motor owners is that they should realize the real purpose of insuring and should opt for Own Damage (OD) or Comprehensive insurance so that they will be entitled to get compensated for their loss from catastrophes like the recent floods that stunned the state and drowned its people and properties,” said a top official of a PSU insurance company. is genuinely averse to writing stories without the support of documents or quotes from the heads of respective businesses or any such entities. But unfortunately these are not in the hands of this portal.

In fact, the insurers also have a vested interest in promoting Own Damage (OD) insurance. Insurance companies historically never make money from third party insurance (TPI) and if the majority continues to go with the TPI, the motor insurance will ever stay as a losing proposition for them.

There is an ongoing confusion that has been ‘making headlines’ in the market whether full claim was possible if the drivers tried to crank up their vehicles after they break down on the roads.

“The drivers are supposed to leave their vehicles as they are once they stop running, and should inform the insurers if the claims are to be honoured by them. This may sound quite ridiculous as any driver for that matter would instinctively try their hands at restarting their vehicle,” one broker explained.

However, there are ways to get around this issue too. While buying policies, one can go for add-on claims from insurers to ensure the full claim. “There is the ‘nil depreciation’ add-on, which obviates the risk of depreciation of the cost of vehicle and there is the ‘hydrostatic lock’, another add-on you can buy to save you from the risk of losing full claim even in the event of the driver inadvertently trying his/her hands on cranking up the broken down vehicle,” the insurers explained.

The insurers hope that the Kerala floods would encourage more and more people to embrace insurance not only for motor but even for their properties, especially their houses and valuable households.

Property insurance is yet to catch up in the State. Only less than two per cent come forward voluntarily to insure their properties. Most of the property insurance business happens out of the pre-condition from the banks while they extend loans to buy these properties.





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