General insurance sector

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General Insurance Sector In India, the general
insurance business was nationalized on 1 January
1973 by the merger and grouping of more than 107
non-life firms into four public sector companies.
In 1999, the Insurance Regulatory and Development
Authority of India (IRDA) paved the way for the
entry of private players into the insurance
market in order to preserve the public sector. In
December 2006, IRDA announced the rates for
tariffed products would be freed as of 1 January
2007.
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Advantages of DE tariffing The IRDA has
prepared a road map for DE tariffing all
categories of general insurance business from 1
January 2007. According to the IRDA, the
advantages of the DE tariffing are encouragement
to scientific rating and adoption of better risk
management practices, elimination of
cross-subsidization leading to independent
pricing for each line of business, development of
innovative practices, and generating
customer-friendly options for the policyholders.
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DE tariffing entails moving from rule-based
underwriting systems and practices to risk-based
decision-making of the subject matter offered for
underwriting. It means that the pricing of
insurance policies is left to the individual
insurance company and it is based on an analysis
and perception of risk. Competition is expected
to whittle down the fat margins that insurers
enjoy in fire and engineering insurance,
eliminate cross-subsidies and force companies to
look at small businesses.
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The proposed DE tariffing in the general
insurance industry would lead to a major shift in
the focus of the companies. DE tariff will
further result a higher penetration of general
insurances in the country. How does it matter to
consumers? I will say that the consumer has
not been benefited much from the insurance
liberalization process. Under the market regime,
the insurance companies will be forced to rate
risks scientifically. The only way insurance
companies can make profit in order to maintain
their solvency ratio without going back to their
shareholders is by prudent underwriting.
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The downside is that the balance-sheets of
non-life insurance companies could be splashed in
red, and buyers with small insurance needs may be
ignored. On DE tariffing, the rating will be
based on the risk profile of the customer it
will be in the customers' interest to make his
risk profile better. A risk should be judged on
its own merits and DE tariffing will force
insurers to scale up their risk-assessment
capability and give the underwriting function its
due importance in the insurance process. After
all, this is the core function of analyzing and
pricing transfer of risk.
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By far the biggest impact of DE tariffing would
be on motor insurance. Here too, good customers
would gain. Now, a car-owner with no claims
subsidizes another who makes large claims. In the
DE tariff regime, car-owners with a good track
record will gain. For example, a driver will bad
record will be charge on a higher premium than a
driver with good record in an exactly same
policy. In forecast, the barring commercial motor
vehicles and medical insurance, premium on assets
(that is, fire, engineering and property risk
covers) will drop by at least 40 in a DE
tariffed regime because the intense competition.
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The premium for trucks and other transport
vehicles is expected to go up substantially as
the related claims ratio, especially for the
third party legal liability segment, has been
very high and the premium charged has not been
commensurate with the risk exposure. Impact on
Insurance Companies Only the fire and
engineering risk business is profitable based on
current tariffs, and the profit margins on these
segments would now be put to severe strain due to
competitive pressures.
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Falling premium income without a concomitant
reduction in claims is likely to bring down the
profits of insurance companies and their solvency
ratios. Consequently, their international rating
will be affected. Then, it would also affect
their reinsurance placements and underwriting
capability. Besides, customers must also be
on their guard to keep an eye on the financial
health of their insurance company to avoid
bankruptcy, which is a common phenomenon in the
international market. Automobile companies will
also be under pressure to reduce repair cost.
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Role of Professional Intermediaries World
over, the concept of risk management has now
become a part of corporate governance.
Professional risk managers enable cost-effective
protection through scientific methods of
identification, evaluation and management of risk
exposures. Faced with daunting choice in
selecting the right insurance cover at the right
price from the right insurer, consumers will look
up to domain experts such as insurance brokers
for advice to get the best that the market has to
offer.
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Insurance Broker vs. Agent Agent As per IRDA
norms, an agent can only represent a single
insurance company and market its
products. Insurance brokers Insurance
brokers obtain clients the best possible coverage
from any insurance company. Insurance brokers are
professionals who assess risk, design the optimal
insurance policy structure, obtain the best
terms, execute insurance contracts and assist in
the settlement of claims. Value-addition is
provided in the form of innovative tailor-made
products. Insurance companies are legally
mandated to absorb their service charges within
the premium paid by the insured. It will be the
insurers who will be under pressure to justify
the rates and performance and yet earn profits.
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The move to DE tariff is also likely to hasten
the process of infusing more capital into the
private insurance companies as and when the
parliamentary approval is obtained for the
Finance Ministry proposal for increasing the
foreign direct investment limit from the present
26 to 49. 3.2 Detoxification of General
Insurance in China
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Retief In year 2007, severe drop in
insurance premiums and CIRC decided to re-impose
tariff on the motor mandatory Third Party
Liability coverage. After ret riff, it is
compulsory for consumers to buy a minimum
coverage. Besides, when the general insurance
companies approached by a car owner, it is
compulsory for insurance companies to provide the
cover. The rates are fixed and the same for all
policyholders (no rating variables) but is meant
to be on a break-even basis. There have been
consumer concerns that the prescribed tariff is
higher than break-even but no credible loss
statistics are available to confirm.
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Since the mandatory limit is rather low,
additional cover can be purchased on a voluntary
basis. Even through the additional cover is
voluntary for the customer to buy it is also very
strictly regulated by the CIRC. Insurance
companies have been provided with advisory policy
wordings as well as advisory rates to charge.
Besides, limited rating variables are used and
maximum discount allowed from the advisory rate
is 30 (which almost every insurer
gives). Source https//justpaste.it/General-Insu
rance-Sector
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