Private life insurers fail to meet break-even targets

The Insurance Regulatory and Development Authority (Irda) has said private life insurers have failed to meet the breakeven targets indicated by them at the time of seeking a licence. However, companies have started taking corrective action and have reduced their operating expenses considerably.

In its annual report for 2009-10 released last week, the regulator said: “But for most of the companies, the expected break-even point has shifted forward as compared to what was envisaged at the time of their application for licence to underwrite insurance business in India.” According to Irda, the experience of the insurance markets globally indicates that companies in the life sector take 7-10 years to break even. In India, several insurance companies will complete 10 years of operations in the current fiscal.

The regulator has pointed out that the increase in expenses was largely because of the insurance companies’ inability to control procurement costs. “Although some increase in capital expenses was seen, increase in expenses of management , especially procurement costs of business , had increased significantly. Also, the companies exceeded their expected levels of management expenses per unit premium. Expense growth rate far outweighed the premium growth rate,” Irda said. What made things worse was that lapse rates affected profitability and rendered all pricings insufficient. On the positive side, death claims have been few, and companies have not had an adverse experience.

Leave a Reply