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Buying general insurance such as health, motor or property cover could cost more from April. The finance ministry has asked the national reinsurer, General Insurance Corporation, to stop underwriting loss-making businesses. The government has also said if insurers take on loss-making businesses, they should bear the risk in their books or increase premium rates.

State-owned GIC is a reinsurance company which has been designated national reinsurer by the government. Reinsurance companies provide wholesale cover to insurance companies. By virtue of this cover, insurers are able to protect their balance sheet if claims in any portfolio exceed a certain level. Regulations require that all general insurance companies compulsorily reinsure a portion of their risks with GIC. While insurance companies have a choice in accepting or rejecting insurance proposals, GIC has to accept the risks that are passed on. In addition to the compulsory portion, insurance companies reinsure other parts of their portfolio with GIC to protect their own balance sheets.

In a communication on February 7, the finance ministry has informed GIC that it should not provide reinsurance for covers that are loss-making and, for such covers, insurers should make arrangements on their own or take risks on their own books.

According to IRDA’s annual report for 2010-11, motor insurance and health insurance had high claims ratios at 103% and 100%, respectively. This means these two businesses have been unprofitable for insurers as claims have outstripped premiums.

-times of india