Stability of insurance industry at stake?

S.I. Fernando, Insurance Consultant

INSURANCE INDUSTRY: Are insurance companies really looking after the interest of the policy holders ? Is the Regulatory Board exercising its powers for the benefit of the policyholders and for the uplift of the Industry?.

In the present context in which insurers are quoting rates to clients which are rock-bottom, and whilst the Insurance Board keeps mum, I seriously believe that the stability of the companies is at stake.

Of course all insurers do undercutting of rates for their survival, otherwise there is no way to become a leader. It is very strange that all companies are showing good results according to their Annual Reports. I doubt very much whether all of them have an underwriting profit.

Why are the so-called professionals (Insurance qualified personnel) just keeping quiet and happily accepting the low rates (all inclusive rate) without any objections. Why don't they set an example for the younger generation?

Is it possible for any Insurance Company to survive by charging low rates such as .01%,.02% .04%.002% etc. (net rate) on big risks where the sum insured runs into billions of rupees. For example, the premium on a Rs. 100 million risk is Rs. 10,000. In another instance the company had only taken premium to settle SR&CC/TC fund and underwritten the risk with zero premium.

By collecting low premia and paying the reinsurance share, SR&CC fund commission to broker/agent and management expenses, what is left for the company? This is questionable. Are the insurance companies arranging proper reinsurance cover for big risks before accepting the risk or keeping it with them without cover. In such instances can any insurance company pay a claim during a disaster without any hassle? If the claim is not honoured what is the plight of the policy holder?.

The Regulatory Board appointed to regulate the industry has conveniently detariffed two important classes of insurance that is Motor and Fire and they are not bothered as to what companies do and companies are free to do whatever they like.

As a result the rates are drastically reduced day by day and there is no uniformity in the wording they use when they are underwriting a risk.

Detariffing Fire Insurance which normally gives any insurance company a good premium income to set off their losses of the other types of insurances which are generally running at a loss has created many problems to companies.

The biggest blunder a regulatory authority could do is detariffing. It would have been sensible if our market had been a well disciplined one. Regulatory Boards are set up by the Government to regulate the industry under their purview and not to palm off their responsibility to others to regulate themselves.

If so, why should there be a Regulatory Board? The problem the Board is facing is that they lack knowledgable insurance personnel to guide them. There is a move to even detariff Workmen's Compensation Insurance. In case IBSL takes a decision to detariff this class of insurance as well, the industry which is already at the verge of collapse will indeed collapse in no time.

There are 16 insurance companies registered with the Insurance Board and I understand that there are some more to be registered in the near future. Nearly 40 odd Brokers too have been given licences to transact business.

Though there is provision in the Act to register insurance companies, it is not advisable to issue too many licences for a small market like ours where the total general insurance premium is around Rs. 22 billion. It is high time the Board takes a decision to restrict the issue of licences.

It is common talk in town that insurance companies are now finding it very difficult to carry on by undercutting rates. Furthermore, the standard of underwriting too has gone down to zero level. Certain wording too have been changed.

It defers from company to company and there is no uniformity. It is very strange that no company/or broker has yet taken the trouble to advise the insurance board as to what is happening in the present insurance market and request them to take suitable action. Their silence shows that they can carry on regardless.

I would like to appeal to the newly appointed Board, Insurance Associations and all those who have the interest of the industry at heart to look at it with greater concern and save it from ruination.