Industry’s loss ratio will likely remain high at 75.2% in 2023
Photo: Vikas Choudhary / CSE Frequent extreme weather events will challenge the profitability of India’s property insurance industry, according to GlobalData, a leading data and analytics company.
With events such as the heavy July rainfall in Northern India and Cyclone Biparjoy that hit Gujarat and parts of Rajasthan in June, the industry’s loss ratio will likely remain high at 75.2 per cent in 2023. This trend is expected to continue over 2023-2027, with a higher average loss ratio of 76.8 per cent, according to GlobalData’s Insurance Database.
“The profitability of insurers is expected to remain challenging due to rising inflation and high claims payout due to the increased frequency of natural catastrophic events," Aarti Sharma, insurance analyst at GlobalData said in a statement.
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Further, she indicated that the recent floods would prompt (re)insurers to reassess their risk and increase property insurance premium rates.
Preliminary official data estimated the losses from the floods due to heavy damage to public and private properties at around Rs 15,000 crore. And Cyclone Biparjoy caused damages to the tune of around Rs 1,0100 crore. As a result, the claims payout from both calamities is expected to be high.
“Despite these challenges, the property insurance industry in India is forecast to grow over the next five years, supported by new product launches and favourable regulatory developments, Aarti added.
The industry is expected to grow at a compound annual growth rate (CAGR) of 10.9 per cent, from Rs 710,400 crore in 2023 to Rs 107,500 crore in 2027 in terms of gross written premiums, she said.
In India, agriculture insurance is the biggest contributor to property insurance premiums. In 2023, it's anticipated to represent 49.3 per cent of property insurance premiums.
The launch of Saral Krishi Bima, a parametric insurance product, in May 2023 by the Agriculture Insurance Company of India (AIC) will broaden the coverage of agriculture insurance.
AIC received a license to launch products that cover livestock, aquaculture and the sericulture industry in April 2023. This will support agriculture insurance growth, which is expected to record a CAGR of 11.5 per cent over 2023–27, Aarti said.
“Extreme weather events are expected to remain a major pain point for property insurers, prompting them to increase prices to maintain profitability. Insurers are likely to engage in alternate propositions such as parametric insurance and risk-based premium pricing to offset their exposure,” she added.
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