This improvement was driven by the development of non-life sector, which contributed 66% to total premiums in FYE 2017 but registered the slowest growth among all segments, the report on CI’s website says.
The still nascent life insurance portfolio, in contrast, could achieve strong growth in both nominal and inflation-adjusted aspects, CI’s website reported.
Since June 2009, individual insurers are generally allowed to calculate the price for various lines of business. It is important, however, to understand that a substantial part of premium setting—wherein some experts believe about 70% of business, such as motor third-party liability, health and commercial business—is directly or indirectly priced by the government, Financial Tribune reported.
The life insurance business showed the highest average growth ratio of 36.9% in FYE 2014–17, which led to an increase in its portfolio share to 13.5% in FYE 2017 from 9.1% in FYE 2014.
In the Sixth Five-Year Development Plan, policymakers are expected to pursue a sharp rise in life insurance with a targeted portfolio share of 50% and promote life insurance. Additionally, the foundation of specialized life insurers is believed to support the sales of life policies.
Life products are available in four categories of universal life, term life, endowment policies and payment protection insurance.
However, in CI’s view, the recent interest rate cuts will put high pressure on the sale of life insurance products. Based on the ratification of the Money and Credit Council from 5 July 2017, banks are mandated to lower long-term deposit rates from 18% to 15% with short-term rates set at approximately 10%.
In this respect, it is important to understand that generally insurance companies are mandated to invest 30% of their resources in bank deposits. Another issue is that other investment options for insurance companies are limited, due to the underdevelopment of the capital market.
Because of the interest rate cuts, the access of insurance to return on investment to support the interest rates offered to life policyholders on endowments and universal life has now been limited.
Besides life, health insurance is the other line of business that showed a substantial average growth rate of 28.8% over FYE 2014-17. With a premium share of 23.3%, health insurance is the second largest line of business following motor business with 44.4%.
The success of private health insurance is related to the increasing demand for healthcare services and the insufficient coverage offered by state entities. However, health insurance has suffered from a continued high loss ratio over the past four years of about 95% on average, which is second to the loss-making motor third-party business with about 102%.
Health insurance suffers from the fact that more than 30% of all paid claims are related to this sector. Additionally, the claims management process is costly and burdensome, especially in the absence of well-functioning professional third-party administrators.
CI has noted that many insurance companies are covering group health policies of big organizations, although this business will hardly be profitable.
However, market experience shows that insurers are sometimes obliged to cover this business to get access to other more profitable business, as group health insurance forms part of a larger insurance package for the same organization.
The clearly dominant line of business remains motor business, with a portfolio share of 44.4% in FYE 2017, with the bulk being motor third-party liability (MTPL), the remainder being physical damage.
MTPL is a highly standardized product and is obligatory for all those who own or drive a vehicle. It is burdened with high payments partly because of ‘blood money’ (fatal accidents) and high payments to the police, Health Ministry and Bodily Injury Indemnity Fund.