OK. Assume you are a journalist in a business daily. You get a press release with the following figures.
1. XYZ Ltd. Sales grows by 20%
2. XYZ Ltd. Operating Loss grows by 63%
Which would you select as your headline?
All major dailies reported "The News" from one of the general insurance companies, mostly copy-pasted from the press release they received from the insurance companies. What they missed (as always) was "The Real news" - or what they call as "Breaking News"
Business Sections of National Dailies Reported United India Insurance's rise in gross premium as well as net profits, without actually digging deep into what actually is a big-big hole - called Underwriting Losses. The Underwriting loss of United India grew from 541 Crore last year to 880 Crore this year, a whopping growth of 63%.
In simple language Underwriting loss or profit, means Premiums collected minus Claims Paid minus Overheads. Underwriting Profits or Loss is one of the most important parameter to analyze any Insurance Company's efficiency and performance.
The Net Profit press-released by all Public Sector Insurance Companies actually includes huge income made as a result of investments of premiums collected, which in all respects is non-core to their business of risk underwriting.
The real news is the 880 Crore of Underwriting Loss! Hello?!
The losses are a result of 2 major challenges faced by the General Insurance Industry:
1. Unhealthy Claim Ratios on Health Insurance (mostly Group business) ranging from 110 to 150%.
2. The government regulated/tariffed premium for third party motor insurance.
More on this Later.Watch this space.
Views Expressed are Personal