Non-life insurers paid Rs.9 out of Rs.10 they collected in FY 2016-17

IRDAI’s annual report shows that the incurred claims ratio of the non-life insurance industry stood at 91% in FY 2016-17 as against 85% the preceding fiscal.

Incurred claims ratio is the net incurred claims to net premium. Simply put, it is the 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.

Since the incurred claim ratio of the non-life industry was less than 100% for all segments, it may have helped the industry to increase profitability to some extent.

While the incurred claim ratio of private non-life insurers saw a marginal fall – from 80.17% to 79.10% – PSU general insurers continue to incur heavy losses in most of the segments due to an 11% increase in their incurred claim ratio. The incurred claim ratio of PSU non-life insurers stood at 100.02% in FY 2016-17 against 89.03% in FY 2015-16.

Health insurance continued to remain a cause for concern for general insurers since the segment recorded 101.05% incurred claim ratio in FY 2016-17. 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 the incurred claim ratio of public and private non-life insurers. The annual report shows that the net incurred claims ratio (ICR) of the public sector non-life insurers stood at 120% compared to 67% of their private peers in FY 2016-17.

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 the motor insurance segment to some extent. The incurred claims ratio of the motor segment increased to 88.17 per cent in 2016-17 from the previous year’s ratio 81.18 per cent.

Kapil Mehta, CEO of SecureNow Insurance Broker, attributed this to poor underwriting practices in PSU non-life insurers. “The rising incurred claim ratio is due to improper under-writing of risks. PSU insurers usually underprice the risk. In my view, the premium rates in India should be hiked by at least 20%. Another reason could be increasing competition in non-life business, particularly health insurance.”

In absolute terms, the net incurred claims of the general insurers stood at Rs.80,662 crore in 2016-17 as against Rs.64,502 crore in 2015-16.