PSU insurers asked not to charge low premium on fire insurance
New Delhi: Concerned over increasing losses in fire insurance business, the Finance Ministry has asked four PSU general insurers to desist from charging "ridiculously" low premium from corporates and undercutting one another.
In a letter to the CMDs of four state-owned general insurance companies, the ministry said that the insurers are focusing on increasing business even at the cost of incurring losses.
"The PSUs are advised to be more cautious and prudent in underwriting fire business by devising a proper underwriting / marketing strategy to maintain its age-old status of a profitable segment of non-life insurance business," the letter said.
The ministry issued this directive to United India Insurance, Oriental Insurance, New India Assurance and National Insurance -- after it came to its notice that the insurers are "offering a ridiculous level of 100 percent discount on the standard fire policies by not charging premium at all for the basic policy but only for add-on covers".
"Such kind of extremely negative business procuring tendency, especially by continuously underwriting of premium by PSUs pricing cannot be allowed to continue, and, therefore, all the four insurance companies shall ensure that the companies desist from snatching renewals of business of other PSU companies," it said.
Fire insurance account of over 50 percent of a general insurers' portfolio.
The ministry also said that while the insurance companies are providing huge discounts to big customers while "snatching business" from other PSU insurers, premiums have been hiked up continuously for individual retail policies.
"As a result of which there is a huge price distortion where individuals and retail policyholders who are otherwise not in a position to bargain are made to pay disproportionately higher level of premium per policy, compared to what it should be vis-?-vis such corporate account holders who have the bargaining power and are able to get such windfall discounts," the letter said.
It said that since the detariffing of fire insurance premium rates since 2007, there have been unhealthy competition among the PSU insurance companies.
It also asked the insurance companies to keep the claim to premium ratio at less than 100 percent by a more "realistic" pricing of the fire insurance cover.