The proposed merger of three state-run general insurance companies could lead to an upward correction in premium rates because competition among public-sector insurers would ease, say analysts.
In his 1 February Budget speech for the fiscal year starting on 1 April, Finance Minister Arun Jaitley, said that the state-owned National Insurance, United India Assurance and Oriental Insurance would be merged into a single insurance entity, which in turn will be listed.
Mr Rakesh Goyal, director at Probus Insurance Brokers, told Financial Express: “Competition will decrease among the insurers as they were competing with each other. There was, especially, huge competition in the small and medium enterprises (SME) insurance segment and this was taking a toll on their profitability.”
Insurance brokers in the group health insurance segment pointed out that the public sector insurers had been very aggressive on pricing and this was hurting premium rates across the industry. The incurred claim ratio in the health segment for public sector insurers surged in FY2017 to 120.15% from 115.45% in FY2016. The ratios for private sector insurers were 74.70% and 74.69% for FY2017 and FY2016, respectively.
In the past, the government had warned state-owned general insurers about their underwriting losses. With the merging of the three insurers and consequent listing, market participants feel that there might be more prudent underwriting going forward.