The IRDAI’s annual report shows that the incurred claims ratio of the non-life insurance industry stood at 85% in FY 2015-16 as against 81% preceding fiscal.
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.
Incurred claim ratio is the 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 incurred claim ratio of private non-life insurers saw a marginal rise i.e. from 79.69% to 80.17%, PSU general insurers continue to incur heavy losses in most of the segments due to 7% increase in their incurred claim ratio. The incurred claim ratio of PSU non-life insurers stood at 89.4% in FY 2015-16.
Experts attributed this to poor underwriting practices in PSU non-life insurers.
Among various segments, health insurance continued to remain a cause of concern for general insurers since the segment recorded 98% incurred claim ratio in FY 2015-16. 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. The annual report shows that the net incurred claims ratio (ICR) of the public sector non-life insurers stood at 115% compared to 69% of their private peers in FY 2015-16.
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 81% in FY 2015-16.
Sanjay Datta, Chief – Underwriting and Claims, ICICI Lombard General Insurance Company Ltd, believes, “The rising ICR in the industry is due to inefficiency in quoting right pricing for a given risk. Also, external factors like inflation and poor catastrophe management has added to the woes of the industry.”
He further said, “The right assessment of risk should be done after keeping in mind past evaluation and future projection.”
In absolute terms, the net incurred claims of non-life insurers stood at Rs.64495 crore in 2015-16 as against Rs.55232 crore in 2014-15.