Your non-life-cover premium to get costlier as insurers face Covid-19 losses, reinsurance charges

There seems to be no respite on the expenses part for the common man, even as one deals with job losses and pay cuts amid the Covid-19 outbreak. From next year, general insurance premiums are all set to rise.

Sources told Moneycontrol that premiums across the fire, health and motor segments will be hiked between 10 and 30 percent in 2021. This is due to the increase in claims expenses, especially due to Covid-19. Further, reinsurance costs are also likely to go up by almost 30 percent for insurers. This is the cost incurred by an insurer from a reinsurer to purchase a risk cover against large claims incurred from policyholders.

Motor insurance, which initially didn’t see claims during the lockdown, is now starting to see loss ratios exceed 100 percent with the rise in third-party insurance claims in the unlock phase. This, according to insurance sources, will lead to a rise in premiums. However, sources added that the hike in comprehensive package policies (third party and own damage) will be 10-15 percent and lower than other segments.

Fire insurance sees spike in claims

“Claims in segments such as fire and health have spiked. Fire insurance has seen a hike, since the lockdown has led to instances of fires in the wiring systems across business establishments. We have no other option but to increase rates,” said an underwriting executive at a mid-sized insurance company.

This will be the second such hike in fire insurance rates. In 2020, the fire insurance rates for 291 occupancies had been revised from January 1 onwards. This was due to the General Insurance Corporation of India (GIC Re) mandating that a host of new industries be covered under the annual rate revision. Fire insurance premiums will be revised upwards between 10-50 percent for most firms.

Discounting has been a common practice in segments like fire insurance, where despite higher claims in the previous year, lower premiums are charged. This helps general insurers retain corporate clients, but impacts their profitability. In 2019, only eight industries were mandated to be charged market rates, based on past claims experience. From 2020, almost all of India Inc has been categorised into the list of occupancies where discounting will be barred.

Health claims on the rise

Covid-19 health claims have also led to new worries for non-life insurers. Claims worth close to Rs 2,100 crore have been received from almost 72,000 people.

Insurance officials said that added to this are non-Covid claims, which are also rising steadily. “In the initial days of the lockdown, elective surgeries were being postponed. Now, even those surgery-related medical claims have come up. Hence, policyholders across health insurance can expect a 10-20 percent premium increase from FY22 onwards,” said the chief financial officer of a health insurance company.

In FY19, according to IRDAI statistics, general insurers incurred Rs 33,676 crore in health insurance claims — that is a monthly claims expense of roughly Rs 2,806 crore for the industry. Insurers estimate that the monthly claims cost in the medical segment is now close to Rs 3,500 crore. “Hospitals are also to blame because they refuse to accept the standard rates for Covid-19. Customers thus have to suffer when we increase premiums,” said the head of claims in a public sector insurer.

When reinsurance covers come up for renewal between January to March every year, the reinsurance company fixes the premium rate to be paid by an insurance company based on past claims losses. Considering that Covid-19 and general medical expenses have raised loss ratios in health insurance to 130-140 percent, reinsurance rates are set to rise as well.

A 130-140 percent loss ratio means that for every Rs 100 collected as premium, Rs 130-140 is paid out as a claim. This loss ratio hike is balanced out by insurers in the form of annual premium increase.

Will standard benefits continue?

Even as premiums are headed north, the standard benefits for renewing a general insurance policy will continue.

These include no-claim bonuses if you haven’t made a medical claim in the previous year as well wellness-based discounts. Premium discounts will also be available if you are regular in working out and eating right.