India’s Finance Ministry requests public sector general insurance companies to reduce expense ratio

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Pranab Mukherjee, Minsiter of FinanceThe Finance Ministry in India has requested that the public sector insurance companies drop their expense ratio and reduce their management expenses in order to achieve better profits.

The ministry has examined the performance of the four PSU insurers and, according to official sources, the motor and health insurance areas are those that continue to present a concern. The goal is to make the expense ratio more competitive. Moreover, these companies have already been told that it will be important to reduce their management expenses.

The four PSU insurance companies are Oriental Insurance, New India Assurance, National Insurance, and United India Insurance.

In the insurance industry, an expense ratio is the amount of the premium that is used to cover all of the costs of obtaining, writing, and providing service for insurance and reinsurance.

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Insurance companies that do not sell life insurance policies are required to keep watch on their expense ratio to make certain that there is no adverse effect on solvency. Sources stated that the claim ratio must be reduced among health insurers as well in order to allow their profits to increase.

It should also be mentioned that National Insurance Company, based in Kolkata, experienced a profit decline of 67 percent in the 2010 to 2011 fiscal year, even when there was a 32 percent increase in premium income.

Equally, United India Insurance, from Chennai, declared a drop in their net profits of 81 percent even though their premiums rose by 22 percent. That same insurer experienced an operating income drop of 83 percent.

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