General Insurance Industry in India - posting losses !!

Think Insurance ~ Think LIC – was the caption of those days.  In old Tamil movies -  if Hero or Heroine were to land up in the metropolis breaking away from their village – they would land up in Train (Egmore railway station) – for sure, you get to see – Beach, Central Station, red coloured Pallavan Transport (PTC) buses running in Mount Road and then there was that skyscraper (!) ,...... the tall 14 storeyed LIC Building............. the landmark building of those years, housing the southern regional headquarters of the Life Insurance Corporation of India.  Wiki describes the first skyscraper of Chennai as 177 ft tall; the tallest building in India when it was inaugurated in 1959.  LIC  marked the transition from lime-and-brick construction to concrete columns in the region. It certainly no longer is the tallest building .... you have so many in Chennai now.

For us Insurance was different – it was General Insurance – me joined Oriental when it has just shed ‘fire & general’ to become Oriental Insurance Co Ltd – and in my office I could see old stationery with name ‘The Oriental Fire & General Insurance Co Ltd’.  For those not associated with insurance industry,  General insurance or non-life insurance policies – covers not life (life to a limit extent of PA / travel / health Policies) but covers properties (both movable and immovable - including automobile) provide payments depending on the loss during the policy period arising out of specified perils.  The most common being : Fire, Motor, Engineering and Marine policies.  In the United Kingdom, insurance is broadly divided into three areas: personal lines, commercial lines and London market.  In India, each Insurer has their own way of specifying their segment – there are verticals and other set-ups – some complex, some oft changing !

At the dawn of 20^th century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of it is stated that   National Insurance Company  was founded in 1906.  The Government of India issued an Ordinance on 19 January 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers and also 75 provident societies.  On similar lines, in 1972 with the General Insurance Business (Nationalisation) Act  passed by the Indian Parliament,  General Insurance business was nationalized with effect from 1 Jan 1973. 107 insurers were amalgamated and grouped into four  PSU Insurance companies. 

The wheel was to complete another circle.   The process of re-opening of Insurance sector began in  1990s.  In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.  Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. In Dec 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are more than 30  general insurance companies including the ECGC and Agriculture Insurance Corporation of India.  Of the non-life Insurers, there are six public sector insurers, including  two specialised insurers namely Agriculture Insurance Company Ltd for Crop Insurance and Export Credit Guarantee Corporation of India for Credit Insurance.  There are 5 private sector insurers underwriting policies exclusively in Health, Personal Accident and Travel insurance segments.  

Insurers would often talk of ‘NCOR’ - Net combined operating ratio is the key ratio of how efficiently premium levels were set. NCoR compares expenses (claims, commission, administration) against Net earned premium for the given period. NCor of less than 100 denotes Profit where as NCor higher than 100 would mean Loss. With this lengthy background, today’s newsitem in Times of India makes a sad reading ! PSU Insurers loss

Three public sector insurance companies have dragged down the non-life industry into a Rs 44-crore loss in FY19. National, Oriental Insurance and United India have together reported losses of Rs 4,200 crore, which is more than the collective profits of the remaining 23 companies. The three unlisted state-owned insurers were the last to announce their financial results. The Government is eyeing a merger and a subsequent listing of these companies. However, due to their poor financial performance, they will require a capital infusion. The performance of the PSU insurers in FY19 is in sharp contrast to their financials in FY18.

In FY18, the four PSU insurers — including the listed New India Assurance — reported a combined net profit of Rs 2,543 crore. This, taken with the private industry’s profits of Rs 3,922 crore, translated into a Rs 6,341-crore profit for the industry in that year. In FY19, the four PSU insurers reported a combined loss of Rs 3,628 crore despite New India turning in a Rs 645-crore profit.

The private insurers have reported a net profit of Rs 3,584 crore — a drop of 8%. Industry officials say that profits have declined partially because the industry did very well in crop insurance in the previous year, which was not the case in the year under review. Also, underwriting losses in property insurance have been very high, prompting the General Insurance Corporation to hike rates in some segments.

The reason for the poor performance of the PSU companies is their huge underwriting loss, which is the excess of claims over premium. In India, most insurers do report underwriting losses but make up for it through investment income. This is because premium is required to be collected up front and companies earn interest or investment income on them. In FY19, only Bajaj Allianz, Universal Sompo and SBI General reported underwriting profits of Rs 18 crore, Rs 43 crore and Rs 82 crore respectively.  The PSU insurers reported an underwriting loss of Rs 18,490 crore — a 47% increase over the Rs 12,507-crore loss in FY18. The private industry also saw underwriting losses jump 62% to Rs 2,864 crore from Rs 1,762 crore in the previous year. However, since the margins of the private companies were better, they still managed to turn in better profits.

With regards – S. Sampathkumar

12^th Aug 2019.

The post was based on news article in Times of India chennai edition on 13.8.2019.  However, today [14.8.19] – they have carried out a corrigendum. :

The report ‘3 PSUs drag non-life insurers into red’, carried in the August 12 edition, inadvertently reported Oriental Insurance Company’s nine-month loss of ₹634 crore as the loss for the entire financial year ended March 2019. The actual loss reported by the company for FY19 stood at ₹294 crore. Consequently, the Indian non-life industry reported a net profit for FY19, and not a ₹44-crore loss as reported.

What to say of the quality & reliability  !!!! 

corrected @ 14.8.2019.