Optima Insurance Brokers Pvt. Ltd.

The Transport Ministry is establishing an electronic database to store drivers’ licensing data from throughout the country. The database aims to stop the issuance of multiple licences in different states. In India, over 30% of drivers have more than one vehicle licence.

In several cases, it was found that some people had secured a licence from another state after their ‘original’ licence was confiscated by the authorities. The new system would curb such practices. The move would also help insurers in detecting and dealing with errant drivers.

The Indian government has issued a notification putting into effect its decision to allow 100% foreign direct investment in insurance intermediaries. The FDI ceiling was previously 49%. Intermediaries include insurance agencies, brokers, third party administrators, surveyors, and loss assessors. The notification was issued by Department of Financial Services of the Finance Ministry on 27 August.

The decision is expected to encourage foreign brokerages buy into Indian companies and deepen the market in terms of new products and technology. Foreign brokers are already keen to expand. In March, Marsh raised its shareholding in its India joint venture to 49% from 26%, while in May, Gallagher took an undisclosed in Edelweiss Insurance Brokers. Other brokers such as Willis Towers Watson and Howden, owned by Hyperion, are also already in the market.

India is one of Asia’s key emerging markets and the long term potential in the country is clear. Fitch says,“We believe increased international involvement, particularly from developed markets, will contribute positively to the development of distribution networks, use of technology in distribution as well as bring in expertise in areas such as marketing and client-servicing. Fitch also expects the proposal, once implemented, to boost M&A in the fragmented insurance intermediary market over the medium term.”

Despite pressure to the economy, the long term prospects of India are good; around 600 million people in India are under the age of 25. There are plenty of opportunities in India as the economy becomes more sophisticated and the hundreds of millions of young people reach working age.

Three public sector insurance companies have dragged down the non-life industry into a INR440m ($6.2m) loss for the financial year ended 31March 2019 (FY2019). National, Oriental and United India reported aggregate losses of INR42bn, which is more than the collective profits of the remaining 23 companies. The reason for the poor performance of the state owned general insurance companies is their huge underwriting loss.

The insurers reported an aggregate underwriting loss of INR184.9bn for FY2019, a 47% increase over FY2018.

The government is considering a merger and a subsequent listing of National, Oriental and United India. However, due to their poor financial performance, they will require capital infusion.

The Municipal Corporation of Delhi (MCD) and earthquake researchers believe that approximately 90% of buildings in Delhi are at risk of collapse from a strong earthquake. Delhi falls in the “at risk of high damage” seismic zone.

The MCD has drafted a policy under which property owners are required to have building safety audits conducted and obtain quake-proof certification. The policy has been submitted to the Delhi government.

After a safety audit, if a building is found to be vulnerable, the property owner will be given some time to strengthen its structure. If the owner does not take any action to strengthen the building, a fine can be imposed and residents evacuated from the building.

Health insurance policyholders in India could soon be able to select a third party administrator (TPA) of their own choice to service claims on their health insurance policies, depending on their insurer’s ties with TPAs. Insurers would need to explicitly provide the names of the TPAs associated with them, from whom the policyholder may choose one, at the time of purchase or renewal of the health insurance policy.

This move will enhance competition among TPAs and also improve services for health insurance policyholders. The proposed revisions to the rules are set out in an exposure draft published on the IRDAI website.

The concept of TPAs in the Indian health insurance space was first introduced in 2001. TPAs are primarily engaged in the business of servicing claims under health insurance policies by authorising cashless treatment and settling claims. They also carry out pre-insurance medical examinations in connection with underwriting of health insurance policies. According to the data available on the IRDAI website, 26 TPAs are registered with the regulator as at 31 March 2019.

An online survey of thousands of car owners in India provided many interesting insights. The findings were released in conjunction with National Insurance Awareness Day, which was on 28 June. The survey findings indicate that consumers may not be totally aware of the nuances of motor insurance.

The findings include:

• Around one third of the respondents buy motor insurance keeping third party liability in mind.
• As many as 45% of respondents believed that both types of cover— third party liability and own damage—are mandatory.
• Six out of 10 consumers are aware of the benefits under motor third party liability insurance cover. Furthermore, one third of respondents believe that third party liability insurance also provides protection against own damage and theft.
• Five out of 10 motor insurance consumers believe that zero depreciation cover encompasses repairs without deduction, third party liability and also theft of the vehicle.

The Indian government is reportedly planning to form a single mega entity by consolidating all four state-run insurers-Oriental, National, United India and New India.

The government of India feels that if Oriental, National and United were to be merged into one entity, the merged entity would compete against New India and the two sides could undercut one another. Hence, the government is studying merging the first three insurers and then getting New India, which is a listed company, to acquire the merged entity.

The proposed single state controlled non-life insurer would be an insurance giant on the lines of LIC, but operating in the general insurance space. As per the latest IRDAI data, New India had a market share of 16.8% in terms of gross direct premium at the end of May. The combined share of the other three state-run insurers was about 25%.

The government also is likely to announce an injection of INR40bn ($573m) in the three unlisted public sector general insurance companies to shore up their capital.

India’s non-life insurance market is marked by continued reliance on realised and unrealised investments gains to offset technical losses, potential short-term disruption from regulatory enhancements and persistently competitive and underperforming core business lines of motor and agriculture, notes international rating agency AM Best. In its Best’s Market Segment Report, titled “Market Segment Outlook: India Non-Life Insurance”, the rating agency says that it is maintaining a negative market segment outlook.

The market’s combined ratios has fluctuated between 110 and 125 over the past five years, and most insurers have become dependent on investment income to generate profitability. The sustainability of such earnings may put the long term viability of many insurers into question.

India’s non-life insurers have been one of the main beneficiaries of the country’s fast growing economy, and the industry has seen a substantial increase in insurable risks. However, heavy competition and cumbersome regulatory hurdles for product development hinder technical performance, with most companies relying on strong investment income derived from the exceptional performance of Indian equities, which have shown sustained outperformance relative to global indices.

Despite the negative outlook, AM Best recognises that some non-life insurers still may experience growth. The international rating agency says that profitability and capital strength of companies that demonstrate sound risk management practices and disciplined underwriting likely are to improve steadily.

While proposing the revision in the third-party insurance premium rates, the regulator has also introduced some welcome features in the new exposure draft.

New rates to be around 15% higher

IRDAI has proposed an increase in excess of 14% for private cars, 21.11% for two-wheelers and around 11% for transport vehicles. For luxury cars and super bikes however, there is no change proposed in the third-party insurance premium.

The third-party insurance premium rates will be in two categories – category I – for older vehicles which have a registration date earlier than September 1, 2018 and category II – for new vehicles with a registration date falling on 1 September 2018 or later.

To promote environment friendly vehicles, electric vehicles will get 15% discount

School buses fall in a new separate category

The increase recommended for school buses is 5.29% for the basic rate and 5.34% per licensed passenger in the draft proposal. IRDAI has said that school buses are those which are registered in the name of a school and used only for the purpose of transporting students to or from a school or on school related trips.

Insurers are preparing to manage claims arising from an extremely powerful cyclone which battered the eastern Indian state of Odisha on 3 May causing extensive damage to property, vehicles, crops and the loss of at least 56 lives. Several news report have also labelled cyclone Fani as the worst storm in four decades affecting eastern India and neighbouring Bangladesh. Fani is the equivalent of a strong Category 3 storm on the Saffir-Simpson Scale.

A large number of claims are expected for the damage of property, vehicles and hospitalisation while few claims will be for damage to crops. There is also likely to be fewer life insurance claims as the state’s improved disaster-management efforts limited the number of casualties.

However, several insurers note that underinsurance is a major challenge. According to research from Lloyd’s India was found to have an insurance penetration rate of less than 1% with the absolute cost of the insurance gap standing at $27bn.

The Insurance Regulatory and Development Authority of India is expected to issue advisories for claims processing in the cyclone-affected areas. There are no official figures regarding total insured losses arising from cyclone Fani yet.