Are Fire premiums on fire?

Fire premium rates in India have gone through the roof is a common refrain among clients. Habituated to soft markets and insurers in a bid to garner market share softening rates further, the rock-bottom was visible. On their own, underwriters still hesitated to take remedial action. Under pressure from reinsurers, the national reinsurer GIC Re ( with whom most Indian insurers have their Fire treaties) decided to crack the whip. If any risk had to be ceded to them under treaties, GIC Re insisted that it should be at the IIB prescribed Loss Rates which were considerably higher than the discounted rates quoted by all and sundry in the market. These rates were to be periodically calibrated by the IIB based on the occupancy-wise loss ratios. This was not a Tariff, as GIC Re, a commercial organisation had only set out the terms at which it would do business. Even those insurers whose treaties were not led by GIC Re took to these new ratings as it was beneficial to them.

Though 2020-21 was not the first year of this Loss-cost or Burning-cost rates, Fire insurance of certain occupancies which were hitherto under the 'non-preferred' segments for some insurers, became acceptable with the steep increase in rates -- and Fire insurance premiums have always been a preferred class of business for all insurers. So for the year 2020-21, one would have expected all non-life insurers to have shown huge increase in their Fire insurance portfolio thanks to the increased rates. The Fire premium figures for 2020-21 are made available now.

The industry as a whole recorded a smart accretion of INR 4415 crores under Fire at a growth rate of 28%. A deep-dive into the numbers throws up a few interesting facts. Out of the 25 non-life insurers, 14 of them grew below the market growth rate in Fire. Acko had no growth and two other private insurers, showed single-digit growth rates -- Kotak Mahindra General ( 1.1%) & Universal Sompo ( 8.4%) despite their small premium bases. Even if they had just retained their renewals, the rate increases alone could have given a higher growth.

Growth rates alone may not be a good measure since the premium bases of companies vary widely. If one looks at premium accretion, the big increases were with New India which added INR 708 crores, ICICI Lombard added INR 607 crores and Tata AIG INR 487 crores. In terms of growth rates,it may be noted that all 4 government-owned insurers grew below the market growth rate and even in terms of actual accretion, except for New India, the other three showed nominal accretion only. Among the smaller insurers, Go Digit added INR 120 crores while Mgama HDI added INR 66 crores. SBI General, which had improved its overall ranking position among insurers had a modest addition of only INR 215 crores at a below-market growth rate of 18%.

Some interesting pointers -- The perception that government-owned insurers accept risks indiscriminately does not ring true totally. Had this been the case, the occupancies with high loss ratios which had higher increases in Burning-cost rates would have helped the government-owned insurers rake in larger Fire premium accretions. Have these risks moved to some of the private insurers who fancied them at increased rates? Even if that be so, what caused such risks to move to the private sector? Capacity constraints look to have been overcome by co-insurance structures among like-minded private insurers. The relatively small accretion of SBI General possibly shows that even earlier they did not have a large book of occupancies wherein steep rate increases were there and that their underwriting was not diluted to accept such occupancies even at increased rates.

Another possible reason for movement of certain risks could well be the standalone storage occupancies outside of manufacturing risks. While these risks had all along been rated based on the Category of goods stored, a new spin was thrown in by IIB in the form of a phenomenal reduction in rates for transporters' godowns. Originally transporters godowns were perceived as extremely High Risk and their rating was fixed basis the category of the most hazardous goods stored therein. Suddenly their rates dropped, yes, dropped from over 5 per mille to 0.72 per mille. Some insurers have interpreted transporters godowns to mean any godown which is not exclusive to the insured. So what happens? Insured gets the lower rate applicable to transporters godown irrespective of the category of goods stored therein and regardless of the basis on which premium was charged under the expiring policy. This interpretation could well be right, but it would be prudent to seek GIC Re's clarification in the matter as there could be issues on reinsurance recoveries from them post-loss, if the intent expressed was different.#fireinsurance #GICRe #GIcouncil