Page 36 - Insurance Times July 2019

third-party motor insurance. However, privately held Profit margins for non-life insurers declined broadly since
insurers are increasingly penetrating in the health insurance de-tariffing, despite efforts to improve operational
sector - some of them are only focusing to that sector being efficiency, because gains in underwriting performance were
the stand-alone health insurer. The claims ratio of the Indian not sufficient to offset declining investment returns.
non-life industry have already increased heavily - primarily
driven by increased provisioning requirements in the motor All non-life insurers are focused on reducing operational
third-party liability segment. costs and raising effectiveness, but market-specific
conditions continue to be the single most important factor.
The overall claims ratios for motor and health insurance With investment income likely to be limited for the
(being the bread-earners for the insurers) have crossed the foreseeable future, and many insurers already trying to
mark of 100% long back during fiscal 2010-11, mainly due make routine activities as efficient as possible, business
to inflation-related increases in claims expenses, such as the acquisition costs are likely to be the next target for non-life
rising cost of spare parts and medical treatments insurers seeking to improve their profitability. Agents and
respectively. The inefficient underwriting practices in the
brokers remain prevalent in most of the markets, so any
industry also contribute significantly to the high claims
significant reduction in acquisition costs is likely to emerge
rates. For example, almost less than 4% of claims were
only as the use of direct channels becomes more prevalent
rejected by non-life industry in the last fiscal.
in India.
The operational expense ratio of the Indian non-life industry
Global Efficiency-Ratio Model shows Indian Non -Life Claims
deteriorated further despite already being the highest globally.
Ratios were drastically hit hard by Catastrophe Claims for
This deterioration was evident among both public and private
the last decade: To analyze the specifics of performance,
insurers. Operational expenses increased as insurance players
insurers used the Efficiency Ratio Model to calculate
continued to invest in the expansion of their business and to
efficiency ratios [expense and profit metrics against gross
compete absolutely being in a severe cut-throat competition
written premiums (GWP)] for major players in each market,
with the international players in this market.
and to analyze broad industry performance trends by
market accordingly.
India's Insurance Regulatory and Development Authority of
India (IRDAI) had contemplated an increase in the limit on
The operational ratio in some companies improved, albeit
foreign direct investment in insurers to 49% long back about
very slightly, as insurers continued to invest in productivity
almost ten years ago. If global players acquire larger stakes
improvements despite rising claim levels, and are starting
in domestic operations, it could lead to more widespread
to see the benefits of productivity investments. Insurers had
adoption of best practices, and resultant operational
been slow to make such investments as they faced
efficiencies in the long run. The acquisition ratio of India's
significant competitive pressure and very low profits.
non-life insurers declined as new and low-cost distribution
However, investment became necessary as existing systems
channels emerged, especially among private-sector
providers, where acquisition costs are lower than amongst
public insurers.
Investment ratios- the return on insurers' investment
portfolios - are mostly declined heavily. Since the financial
crisis, insurers have been more conservative in their
investments amidst ongoing uncertainty in world markets
and weaknesses in macroeconomic conditions. The
European debt crisis injected further volatility into financial
markets. As a result of market and economic uncertainty,
insurers have generally become more heavily invested in
fixed-income securities and bonds, despite the prevailing
low interest yields, and have far less exposure to equities
than before the crisis. This approach keeps returns low, and
limits insurers' exposure to the upside of equities gains, but
it is likely to remain the favored stance for some time.
36 The Insurance Times, July 2019