Private insurers upset over GIC cutting commission rates

April 14th, 2010 - 4:46 pm ICT by IANS  

Chennai, April 14 (IANS) A section of private non-life insurers are planning to take up with the General Insurance Council of India the move by the General Insurance Corporation of India to cut commission rates on obligatory reinsurance business.
Non-life insurers are obliged to place 10 percent of their total reinsurance business with GIC, called obligatory cession.

The reinsurer gets around Rs.3,000 crore under this segment and pays a commission to the primary insurers who place their businesses. The insurers are free to enter into contracts with GIC for further reinsurance.

This March the insurance regulator permitted GIC to negotiate with non-life insurers the commission rates payable on obligatory cession. Armed with that and after studying the past three years’ claims of the general insurers, the GIC has now proposed new commission rates.

For some insurers the rates have not been changed and for some they have been halved.

“On the one hand, we pay around 17.5 percent to get the health insurance business and on the other hand, we get paid just 12.5 percent. In the case of fire insurance business the new rate proposed is 15 percent in the place of 30 percent. The new rates would affect the profitability of many insurers,” said an industry official, asking not to be named.

“We are aware of the issue but insurers have not approached us to take up with GIC,” S.L. Mohan, council secretary general, told IANS.

Justifying the move a senior GIC official, not authorised to speak to the media, told IANS from Mumbai: “Post detariff, the premium rates have come down while we had to pay the commission rates fixed by IRDA (Insurance Regulatory and Development Authority). On our petition IRDA allowed us to negotiate the commission rates with individual companies.”

According to him, the old rates bled GIC as the companies accepted all kinds of business to show topline growth.

“The blended average percentage of commission paid on obligatory cession was 24 percent. The claims ratio is around 83 percent. On Rs.3,000 crore premium income, our payout is Rs.3,210 crore. Making up the loss is difficult,” he said.

According to him, in many cases GIC would receive just the claims statement and not the reinsurance premium. “Netting the premium to be received and the claims payable, we will end up paying cash to the insurer thereby losing an opportunity to earn some investment income.”

“Some insurers have agreed to our new commission rates and some have asked us to have a relook,” he said.

Rajive Kumaraswamy of ICICI Lombard General Insurance said: “GIC has also proposed profit commission to primary insurers if their portfolio is profitable.”

The two options available before the primary insurers are to increase their premium rates or reduce the commission paid to their agents.

“Public sector non-life insurers have decided not to pay more than five percent as commission on their group health insurance policies which is generally a loss-making portfolio,” said the GIC official.

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