Why home insurance premiums don’t shoot up often
12 Aug, 2014 03:03 PM
Though cities like Chennai recently witnessed buildings getting damaged in fire, general insurers are not keen on revising premium rates upwards.

While there is a subsequent hike in premiums in the following year if the insurer has experienced an adverse claim from a particular establishment in the last 12 months, insurers are not resorting to blanket premium revisions.

"Insurance is a cyclical business. When losses exceed premiums received, only then do insurers resort to upward revision of the premium. In case of fire insurance, the rates are soft at the moment with many insurers continuing to resort to heavy discounting on premiums," Milind Kharat, chairman and managing director of the Chennai-headquartered United India Insurance, said.

Currently, the claims ratio in the fire insurance is 80%. A claims ratio over 100% indicates the company is paying more in claims than it is getting in premiums. Also, post detarrifing of fire insurance rates in 2007, rates in fire insurance have been on the downward side.

"There is still huge potential untapped in terms of fire insurance. And with increased competition, everyone is looking to get good business by quoting attractive rates," Kharat added.

Premiums in fire insurance are calculated on the value of the building. Currently, the rates being quoted at five paisa, per Rs 5,000. Suppose the current value of the building is Rs 10 lakh, the annual premium is just Rs 50.

Some insurers state the premium revision is a function of property inspection carried out by underwriters and risk engineers from the insurance company.

"While our experience in claims ratio in the fire segment has been good so far, apart from an adverse claims experience, the general maintenance of the building, the status of electrical fittings are all important components that go into underwriting of the risk. If we feel, the building continues to have some adverse features, we resort to premium loading which ranges from 10% to 50%," G Srinivasan, chairman and managing director, New India Assurance, said.

Other companies like Bajaj Allianz General Insurance have resorted to segmentation of properties.

The preferred category comprises all those buildings and units where the company has a good claims ratio experience, the middle segment represents those businesses where the final decision on issuing or renewing the policy and at what rate is taken at the head quarter level while the decline segment represents those units where the insurer is not aggressive in terms of getting the business to its books because of the nature of industry like chemicals and the higher probability of risks associated with it.

In case of heritage buildings, insurers state that no separate rules are followed when it comes to valuation and subsequent premium calculation. However, some insurers refrain from insuring such structures on account of valuation issues.

"That's because during the time of the claim settlement, the assessment and valuation of the building become difficult," Vishnu Sharma, head, property insurance, Bajaj Allianz General Insurance, said.

But exceptions do exist. Insurers state that if there is a huge loss incurred on account of natural calamities such as an earthquake, there is an upward premium revision across the board.

"Similarly, whenever there is new business or renewals for flood cover during monsoon in Mumbai, the rates are revised upwards in those areas in the city which are more prone to floods," Kharat said.
Source : The Times Of India

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