CHENNAI, Aug 25: Fire insurance rates are likely to undergo a downward revision later this year. C N Ravi, secretary to the Tariff Advisory Committee, told The Indian Express that the rates would in all probability be lowered from the tariffs prevailing now. ``A committee has been set up to determine the new rates and it will take at least six months for the new rates to be determined,'' he said.

Though there has been a demand from the industry to effect rates on a `region-wise' basis, that is fire-prone areas to be charged more than other areas, Ravi said that the new rates would be applied on a uniform basis throughout the country. ``The trend is to simplify the structure,'' he said.

Fire insurance, which earns around 30 per cent of revenue for the insurance industry, still remains a profitable portfolio. Any policy under fire also encompasses damage incurred due to floods, storm, earthquake, terrorism, etc. Claims generally amount to 40 per cent of the revenue from this policy.

With GIC planning to reduce fire tariffs, there would be less available for cross-subsidisation of the loss making portfolios coming under fixed tariffs, namely motor insurance and health insurance, senior industry officials said.

Insurance officials have asked for a hike in motor tariffs before fire rates are reduced. As motor insurance accounts for two-thirds of the business in insurance, GIC's very health would be threatened if earnings from fire prove insufficient for cross-subsidisation.

Even today, there is a downtrend in the number of fire insurance policies taken. The figures for 1995-96 suggest that revenue from fire policies amounted to 24.82 per cent, down from 36.57 per cent in 1974. ``There is a shift in preference to transit and personal accident insurance,'' senior insurance officials said.

``Fire insurance is not viable in smaller policies. While bigger companies take risk management measures, the smaller policy holders (shopkeepers, householders, etc) do not set great store by prevention and there the pay-out is bigger.''

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.