Insurers in India, more particularly the non-life insurers, are reeling under the impact of the slowing down of the Indian economyas a consequence of global financial meltdown in the latter part of 2008. And even more severely due to the detariffing of the premium rating regime made effective from 2007, which was prevalent for five decades. How are they coping with these converging forces?

While detariffing has naturally led to fall in premium rates, induced by the greed of insurers for building premium volumes, the economic slowdown in India has caused the demand of consumers for insurance cover to fall, as evidenced by the sharp decrease in the premium growth rates in the last two years. The combination of these twin converging forces is likely to significantly worsen the financial positions of many non-life insurers in the immediate future.

The insurers, emboldened by the earlier tariff regime, where risks were pre-underwritten, have continued to write business with a mindset of the past by indulging in the undisciplined practice of building premium volumes, as before. They have taken on huge quantities of risk exposures at uneconomic rates. With reinsurance getting scarce and more expensive, both the losses and their expenses are mounting on their net account. For long, insurers long used to rely on the stock market financial gains to bail them out of their operating losses, now they have also been hurt by the poor performance of the stock market.

No silver linings are seen on the horizon, nor do the insurers seem to possess any silver bullets to fire, to overcome the present crisis. The trends in 2009-10 are looking even more ominous, particularly for the private sector players, who started it all. This article analyzes a few issues and what strategies insurers must adopt to stay afloat in these turbulent times.

The international capital markets have suffered a cardiac seizure from the middle of last year with the economic fundamentals of credit, liquidity and mutual trust between the lender and the borrower getting scarce and dysfunctional. The governments of the developed countries around the world are taking vigorous steps to make the financial system re-function normally by lending capital, flushing the markets with liquidity, reducing interest rates to raise the levels of economic activity and to keep the rate of rising unemployment low and to infuse confidence in consumers to spend. The responses to such initiatives have been rather slow but the trend reversals seem positive.

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