It won’t happen to me!

Do you have a home fire insurance policy? I thought not. The reasoning is probably as in the headline. And, the correct thought process is in the concluding sentences of this instalment of CoverNote.

Before that: In the previous instalment of CoverNote we saw a broad outline of the reasons why various forms of personal insurance are not adopted to potential.

This remains a fact in spite of the impressive growth of the premium income of the insurance industry in over two decades of liberalisation.

Let us take fire insurance. Even in the nationalised decades of general insurance, people like you and me barely bought it for our homes.

Premium earner, profit maker

But, it was both the largest premium earner and the star profit-maker for the general insurance industry because the tariff rates were high and the loss experience was low.

Industrial customers had to buy fire insurance against term loans or working capital limits.

They bought just what was necessary and the industry wasn’t in marketing mode. It was the largest portfolio simply because the other portfolios, namely health, accident, marine insurance and various rural insurances, were relatively smaller.

Tariff removal

Things changed when the tariff was removed in the late 2000s. Fire insurance premium rates crashed. Corporate finance had also moved from institutional to debt and equity from the capital markets.

But companies were getting prudent about fire risks and the portfolio grew gradually and organically.

Individual fire insurance picked up only marginally. Except when home loans require it, very rarely are we buying the nicely structured, and inexpensive, fire policies.

Lukewarm demand means companies don’t hawk it. For the individual customer, it’s not yet a pain point, as the cost of healthcare is.

In the next instalment we will see what consumer behaviour has been in health insurance.

But before that, why should you buy a home fire policy? Because it covers also floods, earthquakes, riots and other risks apart from fire, and it can protect not only your home but also its contents. And, it’s a miniscule expenditure when compared with the loss you can suffer.

(The writer is a business journalist specialising in insurance & corporate history)

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