Market overview Challenges amp next step GHI burning cost Detariff Cycle amp its evolution Way forward De tariff cycle learning from other markets Phase I Price War Pressure on cost Adequacy of Sum Insured ID: 1028803
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1. Burning Cost
2. AgendaNeed for burning cost & its introductionMarket overviewChallenges & next stepGHI burning costDetariff Cycle & its evolutionWay forward
3. De tariff cycle - learning from other marketsPhase IPrice WarPressure on costAdequacy of Sum Insured Coverage enhancementPhase IIPhase IIIRational BehaviorReturn of growthValue destructionCompanies go down underMarket ForcesCollaborationsTriggers M&AsCapacity difficult to come byInduced BehaviorReturn of growthRegulatoryInterventionRe tariffCapital infusionRestriction on entry of new players
4. China – Evolution of Distribution, Regulation & Pricing 6 Years2003 – 2006 1H2006 2H - 20082009-20112012+To 2002Sales Staff, Agency, Call Center, Cross SellSales Staff, AgencySales Staff, AgencySales Staff, Agency, Call Center, Cross SellSales StaffDistributionTariff ReformFile and useTariffTariff, Strengthened Market Practice GuidelineTariffRate RegulationGLM and more advanced risk classification gain momentumBasic Risk SegmentationSome Insurers successfully adopted GLMPricing Technology Deep Discount from previous tariff price offered by many insurers. Regulators concerned by increased solvency risk Stiff Tariff-market but it is moving towards detariffication again
5. Historical underwriting results of Chinese local marketMillions RMBData Resource: CIRC, China Insurance YearBook, Annual Statements for P&C insurers, Towers WatsonData are for all domestic P&C insurers combines.
6. Japan Market agreement between market players to control price Combined Ratio Detarrification in 1998 Massive erosion in premium Triggers consolidation Large agents close down Gives rise to increase in solicitorsMergers and Acquisitions
7. AgendaImportance of reserves Detariff Cycle & its evolutionChallenges & next stepGHI burning costNeed for burning cost & its introductionWay forward
8. Global Property Market Scenario: Pricing and Market CapacitiesCapacity of Indian market is higher than the Southeast Asian, African and Middle East counterpartsHigher domestic capacity in the market lead to high competition thereby having an adverse impact on the PricingGross Property Premium , Capacity in the domestic market and Average rates are being compared for Indian Market Context with Southeast Asian Market , African Market and Middle east marketSource: www. axco.co.uk – Country specific Insurance market research papersPeriod: 2010-11 to 2012-13Gross Premium and Capacity in INR Mn
9. Loss Ratio : Industry trendSource: IRDA published NumbersPeriod: 2007-08 to 2013-14Loss ratio’s across products are consistently on an higher side for major products in General Insurance IndustryNo benchmark data available for pricing the risk
10. Regulator Intervention on Price
11. IIB Approach to Burning rates
12. AgendaNeed for burning cost & its introductionDetariff Cycle & its evolutionIndian industry and reserving evolutionGHI burning costChallenges & next stepWay forward
13. Challenge with current Burn cost approach
14. Exposure based pricing
15. Threshold for large lossSeparate losses into attritional and large Threshold is estimated separately for each risk bandProbability of claims greater than threshold is lowLarge losses are low frequency-high severityAttritionalLarge Loss
16. Estimating large loss load
17. AgendaNeed for burning cost & its introductionDetariff Cycle & its evolutionChallenges & next stepChallengesGHI burning costWay forward
18. Burning cost for GHICan industry wide loss cost per life per SI be collated?Demography (Age, Gender)Coverages (say maternity, PED etc)Copay, deductibles and sublimits customized for each riskLocation (Tier I, Tier II; spread of lives in Tier I and Tier II)Complex equation; numerous permutation and combination;Per life risk rate not possible
19. Possible approachSegment wise approach One approach will not suit all types of policiesBurning cost methodology v/s standard risk rateRather than quantifying the burning cost, the approach to be adopted need to be agreed uponPolicies with GWP >25 LacsStandard methodology of burning cost to be agreedFactors to be considered to be standardized (IBNR, O/S claims, medical inflation)Policy level LR not to exceed threshold LR (recommended at 90%) incl IBNRReporting to board for deviation casesPolicies with GWP <25 Lacs Portfolio level monitoring
20. AgendaNeed for burning cost & its introductionDetariff Cycle & its evolutionChallenges & next stepGHI burning costWay forwardWay forward
21. Way Forward
22. Thank You