A ‘CULTURE OF UNDERWRITING’ – THE SURVIVAL AND GROWTH MANTRA FOR INDIAN GENERAL INSURANCE INDUSTRY IN POST DETARIFF SCENARIO V. S. Ananda Kuttan
Faculty Member, National Insurance Academy, Pune
Decades of tariff regulated market and rule-based underwriting has deprived Indian General Insurance Industry of an opportunity to develop sound Underwriting Practices and Professional Risk Management Policies. Detariffing, which is a reality, coupled with high competition, makes it inevitable for the Industry, especially the public sector segment of it, to undergo a fast course of firmly embracing risk-based Underwriting, founded on a robust Risk Management Policy. Perhaps the magnitude of 9/11 terrorism losses and the underlying monstrous dimensions of such risks and the huge liability losses and natural calamity–caused catastrophic losses which shook even the Loyyds recently, could not be even remotely predicted by the best of Risk Experts and Underwriters across the World. Nevertheless, there is still a huge segment of total risk environment that is largely amenable to the discipline of Risk Management and sound, profitable underwriting. Indian General Insurance Industry has to hold the hands of the hesitant culture of professional underwriting and scientific Risk Management practices and formally usher them in to the arena of the Insurance Game.
The momentous opening up of Indian Insurance Industry in the beginning of this Century had thrown up a major challenge of intense competition to the existing Public Sector players. Before the shock could be absorbed by them and get stabilized, Detariffing is hanging above their heads like a double-edged sword. In the absence of the much needed culture of ‘Risk Management’ in its true sense, the detariff regime is emerging as a threat, especially to Public Sector players. Equally, it provides a great opportunity to exhibit their real strength & efficiency in the open market with the long awaited autonomy and product innovations. The need to eliminate cross-subsidies, the compulsions to practice risk-based Underwriting, regulatory compliance requirements, the need for survival and sustained growth has put all
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A‘Culture of underwriting’–The survival and Growth Mantra
the Indian General Insurers in a real fix. The gradual but sure emergence of India as a Global Insurance Market (with many more players targeting India) is adding gravity to the situation. About 70% of the Rs. 2,40,000 million market was governed by ‘Tariff’ until Dec.2006. Lack of product differentiation and innovation had already pushed Indian Insurers to the only alternative of price competition even in Tariff Regime, unethical and often bordering illegal breach of tariff. General Insurance Penetration in India is below 4% as compared to 8% worldwide. IRDA has laid down sufficient checks & controls on critical aspects like Underwriting, Rating Support, Policy terms & conditions, Corporate Governance and role of Tariff Advisory Committee. In the above background the options before the Industry for survival and growth are to be explored.
Options are limited. Miracles cannot be performed. The key requirements for success in the highly competitive, open market are prudent Underwriting Policy, adequate Risk Management Policy and appropriate processes and true Corporate Governance. The Motor TP Liability Insurance Claims Ratio is as high as 250%. The Industry is neither able to avoid losses nor the TP insurance. In Fire segment the claims ratio is around 40%. Tariff regulations neither allowed reduction of rate nor relaxation of conditions to deepen the penetration, which is well below 4%. ‘Tariff and Controls’ on the one side and ‘Liberlisation & Professionalism in Underwriting’ on the other side are antitheses. These stumbling blocks in business sustainability and growth...