Non-Life Insurance Companies Report Massive Underwriting Losses

The non-life insurance industry constitutes approximately 30 per cent of the total insurance industry premium and recorded a total premium of Rs 172,483 crore in FY19 from Rs. 25,930 crore in FY07 at a compound annual growth rate (CAGR) of 17.1 per cent during FY07-19, says CARE Ratings in its research report on Banking, Financial Services and Insurance(BFSI) Research. Courtesy the strong growth on account of the entry of private players, ramping up of the distribution force, bundling of offerings, competitive pricing, and adoption of technology and alliances.

Whereas the public sector non-life insurance segment witnessed a CAGR of 13 per cent over FY07-FY19 from Rs 18,466 crore in FY07 to Rs 79,842 crore in FY19. While the private sector non-life grew at a CAGR of 21.8 per cent during FY07-19, from Rs 8,669 crore in FY07 to Rs 92,641 crore in FY19 on the back of rising health awareness, rising vehicle ownership, entry of private players, and use of alternative distribution networks driving growth. 

However, the share of public sector insurers in total non-life insurance premium declined from 68 per cent in FY07 to 46 per cent in FY19, whereas the share of the private sector insurers grew from 32 per cent in FY07 to 54 per cent in FY19. That said in the first 11 months of FY20, Gross Direct Premium Underwritten was Rs 173,265 crore, a year-on-year (Y-o-Y) growth of 13.9 per cent as compared to Rs 152,097 crore, Gross Direct Premium Underwritten for the first 11 months of FY19. The share of public insurers has further declined to 44 per cent in these 11 months.

“Even as the insurance premium has increased manifold, the profitability has witnessed a substantial decline. Furthermore, the industry is dependent on its investment portfolio for profitability (contrary to global norms) and has witnessed underwriting losses primarily due to higher claims as well as predatory pricing to expand market share,” says Sanjay Agarwal, Senior Director, CARE Ratings.  “The industry would have to rein in the tariff collapse and instead offer a better service experience along with product innovation to grow the market and report underwriting surplus,” adds Agarwal. That said, as per the CARE ratings the primarily reason for underwriting losses of the non-life insurance sector can be attributed towards intense competition, frequency of natural catastrophes and incurred claims continue to remain elevated.