With the general insurance getting de-tariffed on January 1, 2007, the industry is expected to see faster growth and stronger margins. More private entrants are also expected to flourish at the cost of PSU insurers, according to a report released by Macquarie research. Motor, fire and engineering, which form about 70 per cent of the total general insurance business, were de-tariffed on January 1. As a result, insurers are now free to price their policies. Product differentiation, however, will take another year or so.

According to the report, this will lead to better margins for insurers and a considerable reduction in cross subsidisation. However, the report does not expect dramatic margin improvements, as market competition will bring about some control. Health insurance, the report says, will be the fastest growing business while motor will see consistent growth. Fire will see a slowdown in growth.

The report also points to the significant level of under penetration of general insurance in the country, partly because state-owned players never had the capability to deepen the product and private sector players were disincentivised by tariffing. However, with de-tariffing, penetration will increase.

The report also predicts lesser competition than the life insurance business, as there are only one or two serious players. ICICI Lombard and Bajaj Allianz will continue to dominate the sector, according to the report and HDFC will emerge as a strong player after shedding Chubb of the US as its partner.

The report also points out that there is significant value in the non-life business which has not been fully realised by the market.