In a letter to the national reinsurer General Insurance Corporation (GIC) the government advised it not to provide reinsurance cover to individual insurers on policies in the loss making segment.
"GIC ...(is) also advised not to give reinsurance for such policies which are loss making as these lead to claims on GIC and for such businesses, let the insurers take risk or enhance premium," the letter issued by the Finance Ministry earlier this month said.
In case of motor insurance, the companies shell out 120 per cent of the premium they collect as claims. Similarly for health, the claims amount for 103 per cent of the premium.
The government has also directed GIC to halve commission paid to insurance companies for reinsurance business to 5 per cent. "The GIC may pay 5 per cent commission on obligatory cession and no such restriction is imposed on cession beyond 10 per cent obligatory cession," the letter said.
Insurance experts said, buying any general insurance like health, motor or property cover would cost more once the proposal of the government is implemented. "As general insurers` income is expected to be under pressure so there are chances that the insurance companies will pass on the burden to customers," he added.