General insurers in India are planning to introduce a "base rate" system to price premium rates. The move is expected to arrest the rise in underwriting losses in the face of intense competition.
The General Insurance Council, which represents non-life insurance companies, discussed the idea last month at a meeting attended by the heads of New India Assurance, GIC Re, ICICI Lombard, HDFC Ergo and Tata AIG General Insurance, reported the Press Trust of India.
“We are in discussions to standardise best practices in underwriting property and health risks,” General Insurance Council secretary general, Mr R Chandrasekaran, said. He added that the move is to ensure that the risk is properly evaluated by general insurers and taken into account in pricing.
New India Assurance chairman and managing director , Mr G Srinivasan, said: “There is a feeling that premium rates in the domestic market are on the low side. Insurers have been discussing for some time how to ensure that the rates are at the right level and that there is some semblance of uniformity.
“At the July meeting, we had discussed how to bring the rates to the right level across the sectors, including health, motor and fire & engineering.”
“The Insurance Information Bureau is already trying to do it in the fire segment. Along similar lines, we want to have some kind of technical rates in the industry,” he added.
Fixing minimum rates could take insurers back to pre-2007 when tariffs were in force. Insurers have been slashing premium rates since 2007 when the Insurance Regulatory and Development Authority (IRDA) removed its fixed-tariff system for all business lines except for third-party motor insurance. De-tariffing allows insurers to price their products freely.
The growth prospects in Malaysian insurance will continue to attract more foreign investors as market liberalisation approaches. Tightened regulations could also lead to more capital-pressured insurers to merge or divest insurance arms with poor economies of scale, according to Fitch Ratings.
Some M&A transactions have already occurred in 1H14, and Fitch Ratings expects more consolidation to follow in the second half of the year, according to the international rating agency's report entitled “Malaysia Insurance Market Dashboard 1H14”.
Fitch views the industry’s capital strength as solid, as insurers tend to maintain risk-based capital (RBC) ratios in excess of their own individual target capital level (ITCL). Malaysian insurers are required to determine ITCL that is commensurate with their own risk profiles. Fitch expects this industry RBC trend to be well-sustained, supported by insurers’ ongoing surplus growth and the adoption of the RBC framework for the takaful sector in 2014.
Favourable underwriting margins in fire and other non-motor classes are likely to persist, and will cushion underwriting volatility from the motor class – caused mainly by adverse claims from third-party bodily injury and death (TPBID). The motor tariff hike in February 2014 is another step towards deregulation by 2016, but is insufficient for motor insurers to break even in TPBID. The combined ratio for the entire motor class stood at 103% in 2013, and Fitch believes motor profitability could only be achieved when premium rates are fully deregulated.
The life sector will continue to post stable underwriting performance. The strong demand for investment-linked products, underpinned by rising consumers’ risk appetite, will offset pressure from lower sales in traditional life products.
Fitch expects steady growth in the general insurance sector, as higher private consumption will continue to fuel demand for personal line products. Growth in the life sector is also expected to be stable in the medium to long term, as a rising middle-income population will drive higher demand for wealth accumulation and health protection products. The agency force and growing bancassurance channel will continue to support the life sector.
Premium growth prospects for the takaful sector are likely to remain positive, as general and family takaful operators continue to broaden their distribution coverage and product offerings.
Separately, RAM Rating Services of which Fitch is a shareholder, said that Malaysia’s insurance and takaful sector has evolved significantly in the last five years.
“The liberalisation of the Malaysian financial sector in 2009 – which allowed higher foreign equity (from 49% to 70%) in investment banks, Islamic banks and insurance/takaful companies and the issuance of additional licences – paved the way for greater foreign participation in local insurance companies.
“At the same time, Bank Negara Malaysia (BNM) introduced a host of regulatory changes – starting with a new risk-based capital framework for conventional insurers in 2009 (and for takaful operators in 2014) plus various other operating guidelines for both general and life insurance/family takaful businesses to enhance the industry’s financial soundness, efficiency and consumer protection,” explained RAM Rating.
In addition, under new legislation, composite insurers and takaful operators are required to legally separate their general and life/family businesses by 2018.
RAM Ratings pointed out, “All these developments, starting with the sector’s liberalisation, have sparked a wave of mergers and acquisitions in the insurance industry, thus paving the way for greater competition, if not more challenging times ahead, for incumbents."
Between 2010 and June 2014, it said the Malaysian insurance industry saw the conclusion of 17 M&A deals valued at about MYR15 billion (US$4.7 billion), notably in the more fragmented general insurance segment.
The wreck of the Costa Concordia arrives at port of Genoa Pra-Voltri towed by several tugboats.
Costa Concordia has been handed over to the team responsible for its breaking and recycling after being safely docked in the port of Genoa yesterday afternoon.
Ownership of the vessel was transferred in mid-afternoon from Costa Crociere to Italian engineering group Saipem and Genoa ship repairer San Giorgio del Porto for the start of a recycling operation that is expected to take 22 months.
Italian prime minister Matteo Renzi was in Genoa to follow the docking of the ship at a specially prepared berth close to the port's Voltri Terminal Europa.
He praised those involved "for getting something done which everyone said would be impossible".
The wrecked cruise ship and its accompanying convoy left the island of Giglio on Wednesday.
It deliberately slowed down on the last leg of the journey so as to arrive off Genoa in the early hours of Sunday as planned.
The final approach to the port began at 05.00. Shortly afterwards, Genoese pilots boarded the disabled cruise ship to prepare it to enter port.
Before the entry manoeuvres began, Costa Crociere chief executive Michael Thamm went aboard to personally thank senior salvage master Nick Sloane and the Titan Micoperi salvage team for their work in recovering the vessel.
A little before 11 00, harbour tug Messico took over from seagoing tug ITC Blizzard to take Costa Concordia into port.
The majority of the loss stemming from the crash of Malaysia Airlines flight MH-17 will be absorbed by the Lloyd’s market as well as some global re/insurers, according to AM Best.
In the briefing, the rating agency said that it does not expect to take any rating actions in response to the loss given the diversified nature of business underwritten by the entities involved. The total insurance loss will comprise passenger liability claims and physical damage to the aircraft. Passenger liability claims will be covered as part of aviation all risks policies.
Allianz SE, through its specialty lines subsidiary, Allianz Global Corporate & Specialty, is the lead reinsurer on aviation hull and liability risks for Malaysia Airlines.
“As an industry leader in the global aviation market, the Lloyd’s market is also likely to be affected by passenger liability claims, as will a number of global reinsurers. Due to the nature of the loss, a complex and lengthy settlement period is anticipated,” said the rating agency.
According to recent reports, the aircraft is valued at approximately $97 million. Atrium Syndicate 609 has confirmed that it is the leader of the hull war policy for Malaysia Airlines. The syndicate and its co-insurers have agreed to settle the hull war aspect of the loss and collection of funds has been instigated.
AM Best said: “However, the agreement to settle is on the basis that the early assumption regarding the key facts remains correct: i.e., that the plane was shot down and it is the insurers that wrote the airline’s hull war policy, rather than its all risks policy, that are liable.”
The rating agency also added that three consecutive large losses this year - the disappearance of Malaysia Airlines flight MH-370, hull losses due to fighting at Tripoli airportand the downing of Malaysia Airlines flight MH-17 – should now halt the decline in aviation rates. But increases will be constrained by the high level of capacity serving the market.
Lloyd's, Europe, Malaysia Airlines, AM Best, Allianz Global Corporate & Specialty, Atrium, Asia-Pacific
Airline insurers are reviewing cover for aircraft involved in hostile acts such as the downing of Malaysia Airlines flight MH17 as the industry faces its most expensive year since the 9/11 attacks in 2001 with annual losses set to pass $2 billion.
Senior insurance brokers have warned that some underwriters are demanding more than threefold increases in premiums in recent days for so-called "war" insurance policies.
Some insurance companies want details of exact flight paths and are considering withdrawing completely from providing certain types of cover for flights over hotspots in the Middle East and parts of Africa, the brokers added.
Read MoreMalaysia Airlines hit by flight cancellations
Fear of soaring claims for airline war policies comes in the wake of recent fighting at Tripoli airport in Libya, which damaged almost two dozen planes, as well as the MH17 disaster, which killed 298. Payouts on war insurance policies alone are expected to reach several hundred million dollars this year.
Airlines are vulnerable to abrupt changes in policy terms of war insurance, which covers physical damage to aircraft from hostile acts. Such policies can be cancelled with just seven days notice.
On top of war insurance, airlines spend several times more in premiums – typically amounting to millions of dollars each for major airlines – on separate coverage known as "all-risk" policies. These policies are likely to see a rise in premiums but nothing like the increase expected for war insurance.
Read MoreDutch mourn first MH17 bodies flown to Netherlands
Malaysia Airlines is likely to face higher-than-average increases, brokers said, especially given the MH17 disaster struck little more than four months after the disappearance of another of its jets.
Besides the Malaysian disasters, plane crashes last week in Mali and Taiwan will also contribute to insurers' losses. All-risk policies cover liability claims, compensation payments to passengers, legal fees and physical damage to aircraft not caused by hostile acts.
Higher premiums would reverse successive years of lower insurance costs for airlines, with premiums almost halving over the past five years, according to brokers, due to a relative absence of losses.
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Aviation war insurers including the Lloyd's of London market are facing an annual bill this year several times bigger than their premium income, which totals only about $60 million.
Although some premiums have already risen sharply, however, brokers say they expect most airlines to continue securing insurance with underwriters prepared to fill any gaps in coverage. Lancashire, the Lloyd's insurer, said last week it was planning to take advantage of an expected rise in premium levels.
Brokers expect both liability claims and hull losses to run into several hundred million dollars this year. Attritional losses – caused by more regular damage, such as bird strikes – typically come to about $600 million annually. This would push the total losses for 2014 past $2 billion.
Read MoreUkraine fighting complicates MH17 crash probe
However, the total costs remain uncertain because while physical damage losses can be settled quickly, the liability bill can take several years to finalize.
Compensation paid to relatives depend on several factors, such as the nationalities of passengers and their earnings potential. A relatively small number of Americans killed in the recent disasters should cap the losses.
Malaysia Airlines's (MAS) US$2.25-billion overall liability policy is mysteriously missing a standard clause that usually limits insurers' payments for search-and-rescue costs.
MAS’s policy has a high cap by industry standards — US$2.25 billion for each crash — because the carrier operates big Airbus A380s, each configured for 494 passengers, and it wanted ample coverage, reported the New York Times.
But the policy is unusual in that it does not have a separate limit for search-and-rescue costs — it is limited only by the overall US$2.25 billion cap for the policy, three people with knowledge of the policy said. It is unclear why the clause was omitted, they said.
The absence of a separate limit for search-and-rescue costs means that MAS could seek reimbursement for tens of millions — and potentially hundreds of millions — of dollars in search costs if the Malaysian and Australian governments decide to bill the airline for even part of their considerable expenses in looking for Flight MH370, which vanished on 8 March.
An Australian delegation has been sent to Malaysia to broach the question of sharing costs for the Flight 370 investigation and seeking insurance reimbursement, said people with knowledge of the visit and the insurance policy, who spoke on condition of anonymity.
By tradition, governments do not seek reimbursement from an airline for search-and-rescue costs. As a result, the airlines do not typically need to ask their insurers to cover these costs; the insurers cover only so-called commercial costs, though their contracts do allow governments to seek reimbursement.
In the case of Flight 370, the Australian government is paying A$8 million (US$7.5 million), to commercial contractors for a survey of the floor of the Indian Ocean, and has set aside another A$60 million to hire a contractor to tow deep-sea submersibles across 60,000 square km of the ocean floor to look for the missing plane.
Australian officials, Malaysian officials and the lead underwriter of the broad liability policy, Allianz of Germany, all declined to comment, as did the broker who negotiated the insurance policy on Malaysia Airlines’ behalf, the London-based Willis Group Holdings.
China's insurance regulator is set to release all technical standards for the country's second-generation solvency system by the end of this year. The move would follow quantitative tests which CIRC is carrying out this year.
The quantitative tests included a solvency stress test undertaken in June by a sample of 15 insurance companies, according to an update on the development of the solvency system by the China Insurance Regulatory Commission (CIRC). The new system is to be called the China Risk Oriented Solvency System (C-ROSS).
The release of technical standards for the new system by the end of this year would be another milestone in the development of the system. It would follow the announcement last year of the framework for the system. Under this framework, C-ROSS would have three pillars of solvency regulation, involving quantitative capital requirements, qualitative requirements and market discipline mechanisms.
At present, CIRC is working to improve the quantitative capital requirements and has already sought feedback and is testing qualitative requirements. It is also currently reviewing regulations related to the solvency system. With the development work already done or being completed, the regulator expects that technical standards would be finalised this year.
CIRC said that based on the preliminary tests and feedback from the industry, the costs of implementing the system would be low and that there would not be additional pressure on the insurance industry. The tests also showed that the risk-oriented structure of the proposed solvency system would more accurately reflect the different types of risk exposure of the insurance industry.
China's current solvency framework is based on the scale of premium, indemnity and reserves. Under it, CIRC requires insurance companies to maintain a solvency ratio of not less than 100%. Insurers with a solvency ratio higher than 150% would attract the least attention from the regulator. This first-generation solvency regulatory system was introduced in 2003. CIRC expects the development of C-ROSS, that began in 2012, to take up to five years to be completed.
MUMBAI, JULY 22, 2014:
With an eye on reducing the large number of uninsured vehicles in the country, the insurance regulator has started a pilot initiative in Cyberabad, Telangana, to strictly enforce the provisions of the Motor Vehicles Act, which makes it a criminal offence to ply a vehicle without insurance.
“We have collaborated with the police and they will send challans to owners of vehicles without an insurance policy. What we have found (through the pilot) is that out of the 12 lakh registered vehicles, almost 25 per cent do not have an insurance policy,” said M Ramprasad, Member, non-life, Insurance Regulatory and Development Authority (IRDA).
More states to join project “If the results of this pilot are encouraging then we will extend it to seven more states. We are planning to collaborate with the Ministry of Road Transport to use their data on the number of registered vehicles to corroborate data from insurers,” he said.
A report by ICICI Lombard General Insurance said the number of uninsured vehicles in the country is estimated to be 40 per cent in the case of cars and 70 per cent in the two-wheeler segment.
Third-party motor insurance refers to the cover provided by insurers for damage caused by a vehicle to a third party’s property or life.
Third-party motor insurance is a loss making portfolio for general insurers with high claims ratios — in excess of 130 per cent in recent times. So, for every ₹100 collected by them as premium, insurance companies end up paying out ₹130 in claims.
Incidentally, IRDA is also planning to allow general insurers to introduce three-year motor insurance policies for the two-wheeler segment, which has seen a big drop in renewal of policies.
Currently, motor insurance policies are renewable annually. Ramprasad said the regulator is considering making it mandatory for two-wheelers to have a three-year motor insurance cover.
China's latest reverse mortgage pilot scheme, which took effect on 1 July in four of the country's biggest cities, is seen as a niche rather than a mass market programme.
The two-year programme is being carried out in Beijing, Guangzhou, Shanghai and Wuhan. Under it, those aged above 60 can mortgage their residential property to an insurance company in exchange for a certain sum every month. The payout depends on the market value of the property and the owner’s life expectancy.
The programme offers customers two options – participating and non-participating. A participating reverse mortgage allows the insurer to share in any gains arising from the property in question, while under the non-participating option, the insurer does not share in any gains.
The reverse mortgage is seen a niche product because many Chinese cling to the traditional belief that property should be bequeathed to their children, Professor Wang Guojun of the Capital University of Economics told the Economic Daily. Analysts say that it could be attractive mainly to those who have no children or who have more than one property.
In addition, the scheme carries longevity risk for insurers whose profit margins would decrease the longer the life span of the mortgagee, said Prof Wang. Thus, it is considered a product which can be sustained by large insurers rather than their smaller rivals which lack financial capacity and data support.
Previous similar programmes in several cities in recent years met with cool response because of the property inheritance tradition and issues such as China's 70-year leasehold system for residential property and the basis for valuing the mortgaged property.
General insurers have proposed to the government to allow them to issue compulsory third-party (CTP) motor cover, with limited liability. For the high-risk commercial vehicle segment, an option for additional liability limit covers is proposed, which will provide a sum over and above the basic motor policy.
Led by the industry body, the General Insurance Council, non-life insurers have sent a proposal to the Road Transport and Highways Ministry to consider TP covers with fixed limits, similar to the pre-determined liability limits for air and train accidents, reported Business Standard.
The implementation of this model will need an amendment to the Motor Vehicles Act which currently does not stipulate any limit on the liability of vehicle owners. Non-life insurers say due to this law, an increase in claim awards by courts is seen every year.
Currently, combined ratios in the motor insurance segment stand at 140-150%, owing to losses in the TP motor segment. According to estimates, payouts by insurance companies to individuals for motor TP-related accidents have risen 15-20%.
In the financial year ended 31 March 2013, general insurance companies incurred total claims of INRR176 billion (US$2.93 billion) in the motor segment, according to data released by the Insurance Information Bureau of India. "The commercial vehicle segment sees the highest losses and the most claims. If this segment's TP liability is limited, it could lead to lower premiums for other categories," said the chief executive of a small private general insurer.
In 2012-13, the total premium collected in the motor business segment stood at INR284.6 billion. Of the total claims, TP claims amounted to INR91.8 billion while 'own-damage' claims stood at INR84.2 billion.