Optima Insurance Brokers Pvt. Ltd.

India’s Insurance regulator, IRDAI has approved a wide-ranging overhaul of reinsurance regulations aimed at promoting a favourable business environment and inviting more reinsurers to set up business operations in India, to position India as a global reinsurance hub.

As per IRDAI, it recently approved amendments to the Reinsurance Regulations during its 123rd Authority Meeting, to harmonise and streamline existing regulations that apply to Indian insurers, Indian reinsurers, Foreign Reinsurance Branches (FRBs), and International Financial Services Centre Insurance Offices (IIOs).

The key focus areas are:
1. Increase reinsurance sector’s overall capacity to handle growing demand and manage larger risks.
2. Enhance industry’s technical expertise for encouraging excellence and innovation.
3. Reduce the compliance burden on various entities.
4. Minimum capital requirement for FRBs lowered from INR 1 Bn ($ 12.1 Mn) to INR 500 Mn, with the provision to repatriate any excess assigned capital.
5. Order of preference, previously at 6 levels, has been streamlined to 4 levels.
6. Simplified format for reinsurance programmes and rationalisation of regulatory reporting requirements.

Four public sector general insurance companies of India have lost their combined market share by 1.75% year-on-year basis, capturing 32.27% share for the financial year ended on 31st March 2023 (FY2023). All leading public sector general insurers — New India Assurance, United India Insurance, Oriental Insurance Company and National Insurance Company — reported loss of market share in FY2023 in terms of gross direct premium underwritten, due to intense competition from private players in the non-life insurance business.

The weaker underwriting performance of the four public sector insurers has limited their overall profitability and solvency position. The high losses in underwriting along with extremely low solvency ratios allow limited headroom for them to underwrite new business.

Insurer Market Share Premiums
FY2023 Y-o-Y Change FY2023 (INR mn) Y-o-Y Change
New India Assurance 13.42% -1.33% 344,871.5 5.87%
United India 6.87% -0.25% 176,433.2 12.22%
Oriental 6.08% -0.13% 156,095.7 13.85%
National 5.90% -0.04% 151,557.6 15.47%

The premium income rose lesser than the average growth for the non-life market, for these 4 public sector general insurers. As per General Insurance council’s report, the total gross direct premium underwritten by non-life insurance companies in FY2023 grew by 16.36% to INR 2.57 tn ($ 31.4 bn) from INR 2.21 tn in FY2022.

The Indian insurance regulator has allowed Insurers an overall limit on expenses of management (EOM) by removing the individual cap on payments of commission for insurance products. As per the IRDAI (payment of commission) regulations, all life and non-life insurers (general and standalone health insurers) will be able to manage their expenses within the overall limits defined by their gross written premium.

Becoming operational with effect from 1st April 2023, regulations will be reviewed once every three years. It will help insurers to utilize their resources in an optimal manner and extend benefits to the policyholders. Insurance agents will be encouraged to explain policy features and sell insurance products to consumers, increasing insurance penetration in India.

Non-life insurance companies in India are linking the premium rates for fire insurance policies to the claims record, doubling the insurance price for those with reported claims of more than three times the premium paid. This linkage will enable companies to offer discounts to customers with good track record, as claims in property insurance are less frequent.

Industry experts are of the opinion that it is due to the IRDAI’s directive to not to treat the premium rates published by the insurance information bureau as minimum rates.

A high-intensity earthquake measuring 7.8 on the Richter scale devastated parts of Turkey and Syria on 6th February 2023. More than 33,000 people have died and innumerable losses on the economic front. Not just overall economic losses, it is very difficult to predict the economic losses which could have been covered with insurance, as on ground situation becomes clear. This earthquake has caused an estimated insurable economic loss of more than $ 4 bn, impacting the insurance sector.

Many structures and buildings in the region have been completely destroyed, with a good size of the population residing in temporary shelters or buildings prone to earthquake tremors. The Turkish Catastrophe Insurance Pool (TCIP) covers only residential buildings in the urban region, excluding commercial properties and loss of life.
Despite mandatory earthquake insurance cover, many residential properties are not insured, due to affordability. Presently, around 10.8 mn (53.90%) of about 20 mn residential properties in Turkey are covered for earthquake risk.
With insurable economic losses from the Turkey-Syria earthquake touching $ 4 bn or even more, the reinsurance part of TCIP could provide a little over $ 2 bn protection.

Further, local and international commercial insurers which provide insurance to industrial clients, for damaged factories and infrastructure like airports and ports are also majorly reinsured. The extent of claims is estimated to be insignificant for the global reinsurance market.

The Insurance Information Bureau (IIB) of IRDAI is preparing to go live with ‘Beema Satark’ a B2B platform, to alert the general and standalone health Insurers about fraudulent medical insurance cases. All insurance companies will be able to exchange information and gain from this fraud analytics platform of the Indian general insurance industry. It will start with health insurance claims and add motor insurance claims later.

Insurance frauds are on the rise

As per a survey, about 60% of Indian private insurers think that frauds in the life and health insurance are rising significantly, while a minority of 10% think it increased marginally. This survey of insurance frauds was conducted in July-September 2022, with top level management responsible for compliance in leading private Indian insurers.
Frauds are on the rise owing to a higher level of digitization, post-COVID working from remote, and weakening of controls. Data theft is emerging as a big risk while traditional frauds like collusion between third parties and insurance mis-selling continues.

About 40% of the participants across the life and health insurance segments highlighted Fraud Mitigation as the top most priority for the Board and management.

The survey noted that there is an urgent need for Indian insurers to work pro-actively for Fraud risk management framework. Strategic intervention from top decision-makers to mitigate frauds is essential by reviewing and constantly monitoring the insurer’s operational model.

The property reinsurance pricing on loss free risk and CAT programmes in ASEAN and China varies from +15% to +20% risk adjusted, and even larger increases are seen in Taiwan and Korea, as per the”1st View Market Report” released on 1 January.

The report, outlining market conditions at key reinsurance renewal seasons—1 January, 1 April and 1 July—which are based on the real-time observations, also says that there has been an inconsistent application of deductible increases, primarily imposed on loss impacted placements.

Other findings were:
• A common feature is all peril coverage and wordings in existing hours clause have been largely maintained.
• Hardly ever, shortfall terms have been imposed on proportional and excess of loss contracts.
• Limited changes in proportional placements renewal; commissions changed by low single digits. However, there was limited additional capacity.
• Regional Retro deductibles increased substantially (mostly dropping first layers) and pricing was up across the board, however, access remained to worldwide capacity and coverage.
• Risk covers with existing CAT coverage were renewed with no additional restrictions.
• Pre-paid reinstatements shifted to paid for both risk and CAT contracts.
The January 2023 report indicates the conditions in specific markets in Asia, including:
• Loss participation clauses are now commonly in place – most triggered at 100% loss ratio with cedant participation between 30% and 50%.
• Excess of loss pricing increased and was dependent on loss record.
• Overall, deductibles remained unchanged although some cedants chose to have them increased to manage costs.