Page 22 - Insurance Times July 2019

BURNING

COST IN

INSURANCE

AND ITS

IMPORTANCE

he general insurance market got detariffed aggressive competition the insurers were offering heavy
T during 2007 and Post de-tariffing of market the discounts on portfolio basis to retain their accounts and
general insurers in India have free market
were quoting less than 25 to 40% below the estimated
approach to price their products except for
motor third party insurance. Sustainable growth is the life outgo in fire and engineering segment to attract new
corporate.
line for any business and insurance is no exception to it.
Insurers must have the 360 degree view of their business. These corporate with loss making products continue to
The regulator, who watches the interest of the escape price hikes by shopping for new insurers. The chase
policyholders, however observed that despite its advisories to build up top line and the pressure on marketing force of
the free market regime coupled with intense competition the insurers for their targets resulted in insurers willingness
amongst insurers and their obsession for the top-line is to accept the business even not covering expected claim
resulting into deficient assessment of insurable risks, in cost ignoring loading for inflation, acquisition cost, servicing
corporate sector, and that the prices are offered to these cost by third party administrators and management
corporate clients for property insurance and group health expenses.
insurance at non-viable rates which are ultimately
subsidized by the buyers of retail products. Due to In a bid to address this issue and to bring corporate
governance in the business behaviour of the insurers the
About the author authority has prescribed its pricing prescription which is
applicable with the 1st day of 2015. The Authority's
Sanjay Singh prescription for pricing fire, property and group health
MBA (Insurance),Fellow-III,DCII-London insurance is to consider burning cost as starting point to price
Shriram General Insurance Co Ltd these risks. This only can move market forward towards claim
Jaipur plus pricing mechanism. Burning cost is the estimated cost
of claims in proposed insurance period and is calculated from
22 The Insurance Times, July 2019