Fire premium reduction will burn insurers

Venkatachari Jagannathan
10 May 2000

"Our survival is at stake," laments K.N. Bhandari, chairman and managing director, United India Insurance Company Ltd.

"We have to rework our business plans," bemoans a prospective entrant.

While the average rates will be reduced, there will also be a rationalisation in the fire insurance risk covers. Which means that premiums for some risk categories will actually rise. While the reduced rates have become effective 1 May 2000, those policy holders who have to pay an increased premium (a miniscule minority) have been given a year's time to pay the new tariff.

Though the reduction in fire insurance premium rates has been in the air for some time, the industry has been caught unawares by the quantum of reduction.

Bottomlines squeezed!
While the overall fire insurance portfolio should still remain profitable, the profits will be smaller. Traditionally, fire insurance portfolios have cross-subsidised losses suffered in other lines of business, mainly motor insurance.

The high fire insurance rates have helped insurance companies manage losses resulting from the rate wars in marine insurance business. They have also helped them neutralise the impact of the high losses in the motor insurance business.