Crop Insurance Distress to Persist as Reinsurers Maintain Upward Pricing Momentum

Published On 07 Nov 2019 By Sakshi Aggarwal

Even in the second half of the FY20, there will be an impact on the premium collections of insurers because of the tightening of reinsurance covers given out to non-life insurers for crop insurance. Reinsurers have maintained the upward pricing momentum on one end whereas the claims continue to get accumulated on the other.

Crop insurance prices have gone up across the globe due to increased losses in the crop as a result of natural catastrophes. India has also witnessed a couple of incidents pertaining to cyclones and floods that have resulted in an increase of crop losses. 

The head of underwriting at mid-size general insurer says, “The rates have seen a spike and even with the higher premium insurers are going cautious on this business. Hence, several of us in the non-life space is slowing down crop.” 

Some insurers including ICICI Lombard have now decided to not to get involved in the business of crop insurance until they see any improvement in rates.

The Managing Director and Chief Executive Officer of ICICI Lombard General Insurance, Bhargav Dasgupta shares in the post-results earnings call, that the company has been unable to write any new crop business in the first half of FY20 pertaining to prevailing rates. 

"On the one hand, reinsurers have hardened rates. On the other, the commissions that reinsurers pay is not even sufficient to cover the basic cost of sourcing business. Hence, it does not make economic sense," he says.

Insurance companies rely on reinsurance as it offers them protection against the risk involved in the business. If reinsurance is not there, the insurer will then be directly exposed to the risk and claims thereafter. 

Although there is no drought-like situation in India, as per Dasgupta, the crop losses had increased. He shares that the increased losses have lead to increased prices, which means that the insurer has to pay more to save from a reinsurer

Crop insurance plays a significant role in the premium collection so those involved in writing crop have been benefited the most when it comes to premium growth.

For instance, Bajaj Allianz had 57% YoY (Year-on-year) growth in premium during Q2FY20, where crop insurance played the major role. Apart from the crop, 14% growth was witnessed in the September quarter. 

Considering the GDPI (Gross Direct Premium Income) of ICICI Lombard, which was affected badly, witnessed a decline in the crop business by 16.4% in Q2FY20. Keeping aside crop segment, the GDPI increased by 14.5% YoY during the September quarter.

"We want to grow our target segments between 15-20 per cent. If we grow these segments (non-crop) slightly above 17 per cent, then we will have a small single-digit growth in premium in FY20. If they grow slightly below 17 per cent, then we will not even have a single-digit premium growth this fiscal," added Dasgupta.