2008 Reinsurance Market
Fire, Engineering and Workmen’s Compensation classes have been de-tariffed from January 2007. The main impact of this change has been a reduction in the premiums for these classes in the early stages of between 30 percent and 50 percent. The Regulator had restricted the reduction to a maximum of 51.3 percent from the basic rates of the old Tariff. From November 2007 the domestic companies were left free to determine their premium levels. Prices have come down for all lines of business, but the impact has been most keenly felt in the heavy industrial and large commercial sectors. The scheduled de-tariffication of terms and conditions which was proposed to take effect from April 1, 2008 has been put on hold by the Regulator.
De-tariffing has halted the trend of cross-subsidization of classes such as marine and health. The premiums in these classes have stabilized, and there have been no further reductions.
While market growth was largely offset by the reduced premiums ceded following de-tariffication, the amount of proportional capacity purchased grew by more than 100 percent for fire and engineering. There are no event limit conditions on Indian treaties, but cession limits are present on some of the private sector company treaties.
The deteriorating balance of premium-to-limit ratios - and in some cases worsening loss ratios - has resulted in market pressure to reduce treaty commission levels. The increase in automatic capacities and co-insurance in the local market has led to a reduction in the volume of facultative placements. It is only the larger risks with high probably maximum loss (PML) exposures which really test the International market.
Event Excess of Loss Treaties
To date, there has not been a significant insured natural catastrophe in India. The trend towards increasing program limits - which started following the severe flood losses in Maharastra in 2005 - continued into 2008, and the total market limit purchased increased by more than 50 percent this year. The market rate on line (ROL) for this capacity dropped from 4.7 percent to 3.5 percent.
The lead capacity is mainly sourced from General Insurance Corporation (GIC) and the major European professional reinsurers based in Continental Europe and Asia. GIC Re continues to have the leading presence overall in the Indian market, providing the most reinsurance capacity for all classes of reinsurance.
Demand for earthquake reinsurance is increasing, largely because of the wider adoption of models. Some companies are seeking catastrophe excess of loss to protect against this peril on a standalone basis.
Cyclone is a significant peril in India, and flooding can often follow cyclone activity. Cyclones occasionally cause large and damaging waves in the Bay of Bengal, although the tsunami that struck India’s southeast coast in December 2004 emanated from an underwater quake in the Indian Ocean.
India is a seismically-active region, prone to some of the world’s largest continental earthquakes. However, the frequency of large earthquake events is lower than for other earthquake-prone countries in Asia, such as China, Indonesia and Japan. While the majority of India’s earthquakes occur in the sparsely populated Himalayan region, damaging earthquakes can strike more developed areas, the most recent of which was the Gujarat event of 2001.
Subsidence is a concern for infrastructure projects in rough terrains and for buildings in crowded urban environments. Tea and other crops are prone to hail damage.
Non-admitted insurance is not permitted in India. Companies must be registered in order to insure risks within the country (with the exception of marine cargo, which can be covered based on the terms of sale). Foreign investment in non-life ventures is limited to 26 percent.
When insurance is unobtainable from a local insurer, a petition may be made to the Insurance Regulatory and Development Authority (IRDA), India’s insurance regulatory authority, to insure internationally.
Windstorm insurance is provided in a standard commercial/industrial fire and special perils policy. The wind cover encompasses losses resulting from destruction or damage directly caused by storm, cyclone, typhoon, tempest, and tornado.
Flood is also covered under the standard fire and special perils policy, as are subsidence and landslide - including rockslide (subject to certain exclusions such as the normal cracking, settlement, or bedding down of new structures) and coastal or river erosion.
Earthquake risk is addressed by an extension to the fire and special perils policy, and it covers damage following earthquake and shock. Fire following earthquake can be added. An estimated half of all commercial and industrial property policies in India carries earthquake cover.
Hail insurance is included in tea crop covers.
Insurance for strikes, riots, and civil commotion (SRCC) is readily available and includes cover for malicious damage.
Terrorism is covered by a pool managed by the GIC, the sole reinsurer in the Indian insurance market. Local underwriters are prepared to cover terrorism risk, subject to a surcharge which is passed onto the pool. The pool covers acts of terrorism, as well as loss and damage caused when a lawfully constituted authority is suppressing such acts.
Fire and special perils policies are also increasingly popular among home and apartment owners and tenants. These homeowner policies address fire and numerous additional perils, such as lightning, explosion, smoke, impact, riots, strike, malicious damage and weather events. While growth has been rapid in recent years, the penetration rate of general insurance products into Indian households is still quite low.
Non-Life domestic insurance market premium has shown a growth rate of 12.5 percent from January 2007 to January 2008, compared to a figure of 23.9 percent for the previous year. Despite de-tariffing and the resulting rate reductions, gross direct premium has grown on a year-on-year basis, highlighting the strong economic growth of the Indian market.
Two new insurers - namely Future Generali India Insurance and Universal Sompo Insurance - entered the non-life insurance market in 2007 and 2008. Bharati Axa Insurance will be entering the market in the near future, bringing the total number of insurers to 15.
Obligatory cessions to GIC reduced from 15 percent in the period 2007 to 2008 to 10 percent in 2008 to 2009 period.