Following is an excerpt from the speech delivered by the Union Finance Minister Shri Pranab Mukherjee delivered during his meeting with the Chairmen of Public Sector Insurance Companies
We have travelled a long distance since the time Insurance was nationalized in 1956. The growth in premium underwriting has witnessed strong CAGR of 18.85% since 2001. Insurance penetration and density has improved since then. The public confidence in the industry is more positive today then it was earlier. Asia, excluding Japan, will contribute nearly a quarter of global growth in next 5 years and within Asia, India will be the fastest growing general insurance market during this period with an average expected growth of 15%.
I have few concerns in the General Insurance non-life sector where the insurance market is structurally challenged in terms of profitability. India is the only country in Asia with a combined ratio of 105 and above consistently during the last 5 years and all the four PSU General Insurance Companies have been largely responsible for such a trend. The combined ratio for four non-life PSU insurers, which was in the range of 136% to 140% during 2010-11, has come down and now is in the range of 120% to 129% for non-life general insurance companies. There is a desire in general insurance PSUs to grow at a faster rate and be the market leader. The growth rate in GDPI for all four companies, during last year was 21.39% with a market share of 55.76%. While the emphasis on growth in premium is understandable, what is however concerning is the underwriting losses which stood at a whopping 6,134 crore during 2011-12. The overall profitability clearly is driven by the investment income, with continued deterioration in the core business of premium underwriting. It is well understood that growth in top line cannot be at the cost of bottom line. The Ministry has suggested certain welcome steps to curb the unhealthy competition in underwriting premiums and it will help restore the sustained business growth.
I complement the PSU insurance companies in reaching out to the people in far-flung areas. However, I have pointed out earlier in my Zonal Meetings the need to cover all the remaining un-served areas especially district headquarters. You will agree that the per capita income has grown over the years and a large number of people in smaller towns are saving and are looking for insurance products. It is in this regard that we have decided that LIC as well as PSU general insurance companies shall necessarily have a presence in all the towns up to Tier IV classification as per census. Such an early foothold will be advantageous in business sense also to the PSU Insurance Companies and it should be done without any further delay. A reorganization of the existing loss making Branches, especially those of non-life general insurance companies and also de-congestion of branches which are concentrated in metros can help this expansion in un-served areas.
I would also like to highlight the need to ensure that claims are settled in the shortest possible time frame. I notice that large numbers of claims, especially in the General Insurance companies, are pending for final settlement. You may like to take up a drive to ensure that this pendency is minimized.
We have a long way to go if we have to grow on a sound footing. Policyholders trust is of utmost importance and all our functioning should be geared up with this philosophy. There is also a need to have a balance between growth and profitability and our strategy in coming years should be guided accordingly. I have full confidence in all of you and your team and hope that PSU companies will continue to be the leaders in their respective segments and in a financially sound and healthy manner.