The steeply rising costs for Fire and Engineering Insurance could be an opportunity to review management practices, says Sajja Praveen Chowdary, Director, Policybazaar for Business.

National, January 14, 2025 – Preparation is everything in business. This is especially true when it comes to protecting assets. So, it is fair to say that insurance for most industries is not just about ticking a checkbox, but it is a critical and mandatory safeguard. Property and Business Interruption Insurance remain a top priority.

However, as we enter the new year, businesses need to brace for a major hike in premiums for Fire and Engineering Insurance. The primary reason behind this is the withdrawal of discounts on the prescribed rates by the Insurance Information Bureau of India, likely due to intervention by reinsurers. As a result, premiums have increased by 15% to 60%.
The Property Insurance market in India has been a regulated market offering standard pricing and has witnessed many underwriting cycles of a similar nature.
From a tariffed regime until 2005-2006 to the initiation of discounts aimed at luring customers with differentiators among highly regulated policy wordings across all classes of Property Insurance, discounts ranged from 20% to a graded discounting pattern capped at 51.25% and, in some cases, reaching up to 99%. There have been multiple market agreements aimed at correcting pricing, but market forces largely ignored these agreements, leading to a decline in premium collection by insurers.

As discounting became unsustainable, the IRDAI intervened to fix "burning cost" rates for insurers—rates designed to be self-sufficient to mitigate sector losses. However, this effort also failed to achieve the desired corrections.
With all efforts to stabilise market pricing failing, the Ministry of Finance raised an alarm, especially with the national reinsurer, GIC of India, whose stock prices plunged by almost 70% from their original listing price.
This led to innovative steps to control the freefall of premium pricing. GIC, the National Reinsurer, introduced a rule to decline any premium ceding below the prescribed IIB rates. This brought stability to the market, lasting until March 2024. However, by April, discounting resumed, this time more irrationally, creating a crisis with reinsurers.
To restore order, the prescribed rates have been reintroduced, leading to an increase of up to 60% in some cases.

This moment offers both a challenge and an opportunity for Indian businesses. While they face steeply rising costs for Fire and Engineering Insurance, this could also be an opportunity to review their risk management practices and strengthen relationships with insurers, ensuring long-term protection against unforeseen events. 

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