Insurers Feel The Pinch As Auto Sales Show No Sign Of Revival
Falling car sales are causing paid for this sector...
India’s auto slowdown has spread to makers of parts and tyres. Insurers, too, are now beginning to see premium growth stall.
The 10 largest insurers—together accounting for more than three-quarters of the general insurance market—saw their gross underwritten premium for the motor segment decline in May, according to the last disclosed data. In fact, the number declined for nearly all general insurers, after showing signs of volatility in April. Motor category is the biggest or the second-largest line of business for most.
That comes as retail sales of cars, two-wheelers and trucks—measured by registrations—and factory-gate shipments have fallen year-on-year since the last Diwali festival season. They contracted even in June and production cuts haven’t brought inventory down. One of the reasons for falling demand has been higher upfront insurance costs as the regulator made multi-year third-party cover compulsory from Sept. 1 last year to reduce the number of uncovered vehicles on the road.
Motor insurance premiums are likely to be under pressure given the slowdown in new vehicle sales and own-damage cover approaching renewal, HSBC said in a note. While a rise in the number of insured vehicles (especially two-wheelers) would auger well for claims frequency, it is unclear what the impact on claims severity is likely to be, especially as multi-year third-party premiums cannot be re-priced, it said.
The Insurance Regulatory and Development Authority of India has already increased third-party cover pricing starting June 4. That’s expected to help insurers in the long run.
Brokerage View
- A Kotak Research note said since the industry loss ratios have increased considerably over the past few quarters, motor own-damage pricing will get a bit rational in the near term.
- B&K Securities expects a further upside once the long-term motor insurance claims start flowing in.
- JPMorgan expects relatively muted earnings growth for general insurers in the first quarter as the third-party pricing revision was in effect for just 15 days.
Here’s how all motor insurers fared on premium: