The growth of the general insurance industry suffers the absence of adequate insurance protection for many businesses. IRDAI can set up a mechanism to help settle quickly and fairly disputed claims of industries and businessmen.
The general insurance premium income in India has been growing by leaps and bounds having touched Rs 1,70,000 crore in 2018-19. The stand-alone health insurance companies and specialised insurance companies registered a growth of around 13 per cent during that year. The CAGR of the general insurers in India for a 10-year period ending 2017-18 was 18.7 per cent. The annual growth of general insurance premium has been much above the GDP growth rate, industry growth rate and service sector growth rate (source: General Insurance Council Year Book 2017-18).
More Growth in personal insurance …
One would like to presume this as an indicator of economic growth as insurance growth happens only when the economic activity grows. Even though this is supposed to have happened, peculiarly, the growth of the industry in India has been very skewed and only personal lines of insurance like motor and health have grown rapidly in recent years. Out of the total premium of Rs 1.7 lakh crore collected in 2018-19, about Rs 1.1 lakh crore came from motor and health insurance; Rs 34,000 crore from agriculture insurance, substantial portion of this coming from government-sponsored schemes. These three segments constitute 88 per cent of the total premium. The growth of motor premium was 9 per cent, health 20 per cent and agriculture insurance 10 per cent.
Poor share of property insurance
The size of insurance taken by industrial units and businessmen who insure their assets are reflected in property insurances like fire, marine engineering and liability insurance which constitute a mere 10.5 per cent of the total premium and their growth is around 9 per cent with liability insurance alone growing at 20 per cent. This poor share of industrial insurances is due to two factors:
1. Ridiculously low rates of premium.
2. Reduced confidence of businessmen in getting their insurance claims settled reasonably and in time.
Low premium rate and poor claim settlement in commercial business
Both these factors undermine the credibility of insurance in India. For a healthy insurance industry, insurance companies should be financially sound to settle claims fairly and quickly. This can happen only when an adequate premium is charged on industrial units and businessmen. If a paltry premium is charged for property insurance, naturally the kitty from which to settle claims becomes small. This leads to denying claims or short-settle the claims. Low premiums help the insured in the short term on small savings. But when a catastrophe hits, the claim remains unpaid for long, resulting in the closure of the business itself. Therefore, in their own interest, industry and businessmen should encourage insurance companies to charge reasonable rates of premium with a guarantee of claim settlement in quick time, say within a month of the date of loss.
Apart from the insurance policies to compensate businessmen for loss/damage to property due to an accidental fire, storm, or flood, there are policies designed to compensate them for loss of profits during the interruption of their business due to these perils.
With adequate insurance, no businessman needs to fear getting out of business due to catastrophes. Unfortunately, the practice of insurance companies delaying and denying claims has made businessmen quit insurance. Many businessmen prefer self-insurance or some token insurance to satisfy their financiers and do not believe that insurance would protect them at the time of a major disruption in their business due to an unforeseen incident of a fire, flood or storm. This results in under-insurance as well as uninsured assets and economic activities.
Thus, the growth of the general insurance industry suffers from the absence of adequate insurance protection of many businesses and hinders economic activity.
IRDAI should fix time limit for settlement
The Insurance Regulatory and Development Authority of India (IRDAI) should monitor the time taken for settlement of claims of industrial units and fix time limits for claims settlement. For not complying within the time limit, insurance companies should be made to pay interest from the date of loss. This will drive the insurance companies to be on their toes to appoint the surveyor and get the required documents from the insured in time, assess the loss quickly and settle the claims early. The common excuse of the surveyor or the insurance companies in settlement of claims is: ‘’insured not submitting the documents on time.’’ Insured being the affected party and keen on getting the claim early, why should they delay in submitting the documents? Only when there is a pressure to pay interest from the date of loss, these lame excuses for delay in settlement can be avoided. This will also lead the insurance companies to start charging economic premium rates.
IRDAI can also set up a mechanism to quickly dispose-of disputed claims of industries and businessmen. Today, they are concentrating on redressing the grievance of individuals and an ombudsman mechanism is available for personal lines of business. But for commercial lines, there is no such mechanism and one has to go to court that involves long delays. IRDAI may perhaps enhance the infrastructure of the existing ombudsman to deal with commercial claims up to Rs10 crore also.