The Insurance Regulatory and Development Authority (Irda) on Monday said that policy holders will gradually have to pay more for motor, health and other general insurance covers as costs would go up due to companies setting aside higher funds for claim settlements. "I think the demand and supply position in the non-life industry will be such that prices should harden and I expect to see evidence of that in the course of next few years. And I would like to make it even harder as we go along," Irda Chairman J Harinarayan said.
Harinarayan, who was speaking at the 'Ficci National Conference on Insurance', said the non-life insurance companies would need to bring in changes in marketing, pricing and modes of claim settlement to become profitable. "Because of the requirement of increase in provisioning, there will be a reduction in capacity and because of that there will be a hardening of prices," Harinarayan added.
Irda has already proposed to increase provisioning requirement for insurers providing motor insurance covers. Irda had increased the provisions made for motor pool to 153 per cent of book value for the four years till March 31, 2010, against 126 per cent maintained by companies.This is aimed at enhancing solvency margins and make higher provisioning for third-party motor pool.
Solvency margin is the minimum surplus on the insurer's assets over liability set by the regulator and the insurance companies are estimated to have provided about Rs 3,500 crore till March 31, 2010, for maintaining this margin.
Harinarayan said in the next three years the insurance companies will see changes in distribution set up, marketing techniques, channels of distribution and also terms of regulatory development. "The agency model that we see right now has serious deficiencies and that requires to be strengthened. I do not think the agency distribution model is going to last very long," he said.
He said agency model in the traditional form has vanished in large markets across the world. "...I do not see why India will be any exception to that particular development," the Irda chief added. He said even as the market widens, "it is not going to go down to the poorest of poor". "The total size of the market we are looking at (for insurance penetration) may be 500-600 million in terms of kind of product we have to offer," Harinaryan said.Going forward in general insurance space, he said, the health and annuity or pension-linked insurance products will gain predominance.