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Risk must cover the ‘burning cost’
Penetration of general insurance is abysmally low - at just 0.78 per cent. Favourable demography, increasing insurance awareness and rising disposable incomes would help in increasing this penetration and density, says Milind Kharat, CMD United India Insurance.

In 2014-15 United India Insurance (UII) is maintaining a healthy record of growth. In the first quarter, it recorded a growth of 11 per cent on premium income of Rs   2729 crore and made an after tax profit of Rs 229 crore. At this rate UII would comfortably meet the target set of Rs 11,000 crore of premium income and profits of Rs 700 crore for the year.

UII, is the second largest general insurance company in the public sector. Over the last four years the company has been registering handsome growth: premium income increased from Rs 5239 crore in 2009-10 to Rs 9709 crore in 2013-14. At the end of 31 March 2014 the company had issued 214 lakh policies and earned after tax profit for the year of Rs 528 crore. On a paid up capital of Rs 150 crore, the company had accumulated handsome reserves and surplus of Rs 5211 crore. With an excellent solvency margin of 2.54, UII has been rated B++.


Reinsurance helped…

Just back from attending the global reinsurance conference at Monte Carlo, France, Kharat referred to the projection for the coming year for global insurance industry as soft. Large insurance companies, reinsurers and major investors from across the globe attended the conference.

Kharat pointed to reinsurance saving the general insurance companies from massive claims made after natural calamities. The Uttarkhand floods of last year did impact on the finances of general insurance companies. This year the extensive flooding of Jammu & Kashmir and the more recent cyclone Hudhud that devastated Visakhapatnam are resulting in a spurt in claims. Kharat, however, said that reinsurance would take care of these.  

UII took the lead in expanding health insurance cover to the masses, joining hands with the health cover programme of Tamil Nadu government. This provides insurance cover to 40 million of the State’s 70 million population. UII is expanding this concept in several other states like Bihar, Rajasthan, Uttarakhand and UP.


New products in the pipeline

Kharat mentioned that the focus areas will continue to be motor and health insurance. UII plans to introduce a number of new products for motor policy. The company is offering a add-on nil depreciation policy, engine protect and cashless services. Likewise, UII plans a family medicare policy that incorporates the revised regulations and plans to offer a number of new health products.

Kharat also pointed to a plan to recruit over 1000 to replace the huge retirees in the next couple of years.


Predatory pricing affects the sector

What are his concerns? This insurance expert with around 35 years of experience, points to the intense competition: “ours is not a mature market. Any risk must cover the ‘burning cost,’ namely, the loss ratio of a risk over the years. There is no rationale to charge premium below the burning cost. Unfortunately, in the Indian market this is not happening. There has not been serious attention paid by companies to break even,” he said.  

Kharat expressed concern over losses incurred on motor third party insurance. “Courts award high compensation. Tariffs are not adequate. These need correction.”

Kharat referred to the recent plan to offer insurance policies for two-wheelers over three years. “This will help to bring more two-wheelers on roads under the statutory TP cover.  However, a large number of cars and commercial vehicles ply without the mandatory third party insurance. The Indian Insurance Bureau collects data from insurance companies and thus has all information on the status of vehicles insured. It is now possible to provide such data to the RTOs and help them track un-insured vehicles,” said Kharat.


Good potential for penetration

The UII CMD pointed to the abysmally low level of penetration of general insurance, at just 0.78 per cent. This is bound to increase with highly favourable demographics, increasing level of insurance awareness and rising disposable incomes. UII continues to expand its reach by increasing the agency force to 80,000 in the current year. The PM’s Jan Dhan Yojana that includes micro insurance products for rural areas, would also help, he said. – SV

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