Page 29 - Insurance Times June 2023

Understanding

the crisis plaguing

the Insurance

Jagendra Kumar
Ex. CEO,
Industry of India Pearl Insurance Brokers

The insurance companies inflates losses by manipulating its own claim reserves at key moments
to justify rate hikes particularly as it is trying to trigger a hard market as is likely happening today.
Raising reserves is used not only to raise rates but also to lower tax liabilities at times of significant
profits.

Crisis & Challenges before the Insurance (measured as a % of GDP) is very low in India and stands
at less than 1%, much lower compared to developed
Industry
markets such as the US, which had penetration of 7.8%
Understanding the following challenges ahead prepares in 2017. Even emerging markets like China and Brazil
insurers for success in the same way that clients are preparing have higher penetration of 1.8% and 3.3%, respectively.
for hazards when purchasing a policy. The new financial year
The insurance companies inflates losses by manipulating
will be filled with opportunities to grow the business, but
its own claim reserves at key moments to justify rate
there will be challenges to look out for when navigating the
hikes particularly as it is trying to trigger a hard market
way through the insurance industry in 2022-23. Luckily,
as is likely happening today. Raising reserves is used not
companies are prepared with a list of the most common
only to raise rates but also to lower tax liabilities at times
challenges to get ahead of their competitors to prepare for
of significant profits.
many of the potential threats to their business:
The insurance industry claims it is suffering losses, but it For two decades, businesses and consumers have been
victims of periodic eruptions in insurance premiums
is actually massively prospering. Indeed, the foundation
caused by the property/casualty insurance industry's
for its argument for raising rates on businesses - that it is
economic cycle, the industry's unique accounting
in some kind of financial peril - is easily proven to be
methods, and laws that allow anti-competitive pricing
untrue. In fact, insurers' surplus - the money held above
by this industry. The only way to stop volcanic eruptions
that reserved for expected losses.
in insurance premiums is through better oversight and
Nothing much is happening to promote the penetration
regulation of the industry's mismanaged accounting, and
of insurance. Curiously it is the government schemes like
the cyclical nature of the insurance business.
health and life insurance that have increased the
penetration while the insurers have not done much. The non-life insurance industry is one of the most
important but least understood industries in the nation.
Despite the high growth, general insurance penetration
26 June 2023 The Insurance Times