HDFC Ergo General Insurance has implemented stricter cost controls in its motor third-party (TP) insurance segment, driven by concerns that claims inflation could render the line unprofitable without rigorous underwriting. The company reset its reserves for the fiscal years 2025-2026 after identifying that inflation had outpaced its earlier assumptions.
Claims Dynamics Shift
Speaking to the Times of India, Managing Director and CEO Parthanil Ghosh highlighted a significant change in claim patterns. 'We felt that the third-party rates vis-a-vis the commission that is being paid, is something that doesn't make sense to grow this business everywhere,' Ghosh said. He noted that the company increased its claims reserve by nearly Rs 950 crore, with capital infusion from its promoters to support this adjustment.
Accident Severity on the Rise
Ghosh pointed out that while the number of accidents has declined, the severity of each accident has increased. 'Earlier a hit would have resulted in an injury. Now it is converted to death because the impact is much higher,' he explained. This trend has directly contributed to higher claims payouts.
Commission Cuts and Business Impact
In response, HDFC Ergo reduced commissions in the motor TP segment, particularly in areas where claims had inflated payouts. 'Our commission rate... is in single digit... where most of the companies will be upwards of 20%,' Ghosh stated. As a result, motor insurance now constitutes 19% of the company's business, roughly half the industry average weight.
Growth Rebounds After Revision
Following the revision in underwriting practices and commission structures, HDFC Ergo has observed a rebound in growth within the motor TP segment. The company remains focused on maintaining profitability while adapting to evolving claims dynamics.
