Incurred claim ratio of non-life insurers remains flat in FY 2014-15

Incurred claim ratio of non-life insurance companies witnessed a marginal decline of less than 1% last fiscal, shows IRDA annual report.

Incurred claim ratio is 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.

While private insurers witnessed a decline of 2% in the incurred claim ratio from 80% in FY 2013-14 to 78% in FY 2014-15, public sector general insurers saw 1% dip in the incurred claim ratio, i.e. from 83% to 82% during the same period.

In its annual report, IRDAI said, “The incurred claims ratio (net incurred claims to net earned premium) of the non-life insurance industry was 81.70% during 2014-15 which is marginally less than the previous year figure of 81.98%. The incurred claims ratio for public sector insurers was 82.09% for the year 2014-15 which declined from the previous year’s incurred claims ratio of 83.20%. The incurred claims ratio for the private sector non-life insurers, standalone health insurers and specialized insurers for the year 2014-15 was 79.69 %, 62.18% and 110.68% respectively as compared to the previous year’s ratio of 79.58%, 66.06% and 96.69% respectively.”

Among public sector general insurers, the incurred claim ratio of National and Oriental Insurance stood at 78% and 82% respectively. Both New India and United recorded incurred claim ratio of 84% in FY 2014-15.

Similarly, among the private non-life players, ICICI Lombard recorded an incurred claim ratio of 81% in FY 2014-15 against 83% in FY 2013-14. Also, Bajaj Allianz and Reliance posted incurred claim ratios of 72% and 94% respectively in the previous fiscal.

Incurred claim ratio of general insurers in FY 2014-15

Source: IRDAI

Among various segments, health insurance continued to remain a cause of concern for general insurers since the segment recorded 97% incurred claim ratio in FY 2014-15. Such a high incurred ratio indicates that non-life insurers incurred hefty losses in this segment which affected their growth.

Surprisingly, there was a huge difference between incurred claim ratio of public and private non-life insurers. While public non-life insurers had an incurred claim ratio of 110%, private counterparts made money from this segment by recording incurred claim ratio of only 74%. Experts attributed this wide variation among insurers to poor underwriting by a few private players.

There was some respite for insurers in the motor insurance category. An increase in third party motor insurance premium tariff helped non-life insurers limit their loss ratio in motor insurance segment to some extent. The motor insurance segment posted incurred claim ratio of 77% in FY 2014-15 as against 80% in FY 2013-14.

The profitability of general insurance firms was flat last year. In FY 2014-15, the total net profit of the non-life insurance industry stood at Rs. 4,639 crore as against Rs. 4,649 crore in 2013-14. While  the net profit of public sector companies stood at Rs. 3,100 crore last fiscal as against Rs.2,900 crore in the preceding fiscal, their private counterparts reported a net profit of Rs.1,650 crore in FY 2014-15 compared to Rs.1,540 crore in FY 2013-14. However, the overall profitability declined due to hefty losses incurred by standalone health insurance companies. Since all standalone health insurers are new entrants, it will take time to them to break-even.

Overall, the incurred claim ratio of the non-life industry was less than 100% for all segments in FY 2014-15 which helped the industry to increase profitability to some extent.