National Insurance on Profit Path

Calcutta : The National Insurance Company hopes to make a profit in 2006-07 against a loss of Rs 59 crore in 2005-06. The last three months of the fiscal have been especially good with business rising 17 per cent on a year-on-year basis.

Premium rates for motor insurance were deregulated from January this year and this has benefited the company. The company has also scaled down its motor insurance business to cut its losses. “We have managed to scale down our motor insurance business to 50 per cent of aggregate premium income of Rs 3,800 crore in 2006-07,” said chairman and managing director V. Ramaswamy “.

The company clocked a total premium of Rs 3,520 crore in 2005-06. But 60 per cent of our portfolio that year was motor insurance. Because of the huge motor insurance portfolio, particularly in the commercial vehicle segment, and third party claims thereon, we suffered a net loss of Rs 59 crore. But we expect to post a profit in 2006-07,” he said. Ramaswamy, however, could not give the profit figure for the reporting financial year as the accounts are yet to be finalised.

The freedom to set their own premium rates in motor insurance also helped the company. The tariff advisory committee of the IRDA will no longer regulate rates for motor, fire and engineering and insurers can fix their own rates with a prior approval from the regulator. However, in motor insurance, insurers have only partial freedom and can fix rates only for the ‘own damaged’ portion of the risk premium, while the premium for third party liability still remains administered. “However, the introduction of the risk pooling mechanism will help us and other public sector insurers overcome the losses suffered from third party claims. Therefore, we don’t need to reduce our motor insurance portfolio further,” Ramaswamy said.

Under the risk pooling system, all premia paid towards motor insurance policies (commercial vehicle), irrespective of which insurer has underwritten it, will accrue to a common pool and payments to all third party claims will be met from this. In other words, the losses of third party liability in motor insurance are shared equally by all insurers. Before the detariffed regime, private insurers would not offer third party cover to second hand and old commercial vehicles. But since third party coverage is a must for commercial vehicles, public sector insurers had to provide the cover and pay for the losses arising out of such claims.

Source of Article:www.telegraphindia.com.

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