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Home / Industry News

Gen insurers up risk-based pricing

24/September/2009

While bigger firms already have the systems in place, others are in the process of doing so

The insurance regulator's concern on mounting underwriting losses has led general insurance companies to spruce up risk management practices and enhance the role of actuaries.With mounting underwriting losses of insurers owing to undercutting of prices in the detariff regime, Insurance Regulatory and Regulatory Authority (Irda) had issued a directive asking companies to have a proper risk-based pricing model and increase the role of actuaries from October 2009.

The actuary works on pricing of the products, actuarial functions of the company and valuations of assets and liabilities. Moreover, he assures that the company complies with the regulatory guidelines. DNA Money spoke to some general insurance companies to assess their level of preparedness to meet the Irda deadline. While the bigger players claimed to already have the systems in place, the newer entrants said they were in the process of doing so.

"We have been following risk based principles for a while. Therefore, we have the necessary data to practice risk-based pricing," said Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance, a private sector general insurer."Risk-based pricing introduces a discipline and associated processes and controls that were not well developed within the general insurance companies under the tariff regime," he added. The detariff market necessitates that each risk covered is evaluated based on past claims experience, risk location and other key parameters before the risk is accepted and premium charged.

Anuj Gulati, director, ICICI Lombard, the largest private sector player, said, robust underwriting standards and rating schedules are imperative for insurers. "Our pricing models are built in such a manner which helps to determine the rates based on the risk attributes. The data is reviewed periodically and the models are modified as required," he said.

Bharti Axa General, a relatively new company, has set up an exclusive risk engineering vertical. "We have begun the process of data collection since we started operations a year ago and are currently in the process of building the database," said Amarnath Ananthanarayanan, CEO, Bharti Axa General Insurance. Future Generali, a relatively new player, is depending on market data for pricing. "We are relying more on market statistics in arrive at loss ratios. As time passes, we shall have our own experience and shall review the pricing on that basis regularly," said Krishnamoorthy Rao, COO Future Generali India.

Some of the older players have also ational the importance of having a comprehensive database in place. "This was perhaps not so crucial when the market was driven by tariffs and no company was allowed to price a product on its own. With a deregulated market at present the requirement of a data base is pertinent for proper pricing," said an official with a ationalized insurer. The general insurance industry is awaiting Irda guidance for preparation of a financial condition report of the non-life insurer by the respective actuary.

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