New India to post huge underwriting loss

The Mumbai-based New India Assurance Company, the nation’s premier general insurance company is likely to close fiscal 2000-01 with an underwriting loss of Rs. 400 crore, net of reinsurance claims, as against Rs. 177 crore loss posted during in the immediately previous fiscal 1999-2000.

Apart from the usual huge losses the company suffers in its motor insurance portfolio, New India’s underwriting results got severely hit last fiscal due to catastrophic earthquake that struck Gujarat this January and couple of other major industrial losses. The company’s claims ratio is at an unhealthy 92 per cent while the claims-settlement ratio is around 88 per cent.

The company also got hit on its revenue side with the reduction in the fire insurance rates and the emergence of competition. As per the provisional figures, the company is likely to show a premium income of Rs. 3,049 crore for last year, falling short of the target of Rs. 3,265 crore. During 1999-2000 the company earned a premium of Rs.2,979 crore.

While premium growth has been registered in motor, marine hull and miscellaneous (other than fire and transit insurance’s) the company lost premium in the fire and transit insurance business.

Says Mr. K. N. Bhandari, chairman and managing director, New India Assurance, "The reduction in fire business is mainly due to the downward revision in premium rates." According to him the company lost around Rs. 200 crore in premium due to the revision. (also see interview The Indian press has failed us).

When queried about revising upwards the motor insurance rates, since the Tariff Advisory Committee (TAC) - the industry’s premium fixing body - has now stated the current rates are the floor rates, he says that a committee set up by Insurance Regulatory and Development Authority (IRDA) is looking into the matter.

Speaking about the competition from the Mumbai-based Tata-AIG and Chennai-based Royal Sundaram Alliance Insurance who active in their respective regions and also other likely competitors, Mr. Bhandari says that the loss of business will be just 3 per cent.

While that may be true, what New India and the other three government-owned general insurance companies are losing out is new and growing business prospects. For instance Citibank which has a tie up with New India to offer mediclaim/personal accident insurance policies
to it credit card holders has now joined hands with Royal Sundaram Alliance to offer other personal insurance products like householders insurance.

According to New India officials, the company’s premium from the Citibank tie-up is around Rs. 18 crore per annum. On the other hand it is learnt that Royal Sundaram has already earned around a sizeable sum in three months with its Citibank partnership.

Pressed by such tactics New India is now changing its act. The company is now planning to offer mediclaim cover as a part of its motor insurance policy. "With additional covers we can have our own rates independent of TAC," says a general manager.

As a part of expanding its reach New India is also talking with a life insurance company for business relationship. "The talks are in a preliminary stages and I wouldn’t want to dwell on that," says Mr. Bhandari. However the rationale for such a tie-up is to utilise the infrastructure build over the years.

That aside the company can look at its own employees and their families to promote personal lines of business like household, personal accident etc. A majority of the 85,000-strong work force in the government general insurance industry have not insured their houses or household articles. If only each company focuses on this segment then they could earn couple of crore effortlessly.

According to Mr. Bhandari, the company will be consolidating its overseas operations under one head. The company has a direct presence in 29 locations and operates in 10 cities through associates/subsidiary companies.