As a continuation of the reform process in the insurance industry, the regulator is willing to remove the price range stipulated for tariffs (or premiums) for general insurance companies by next year, said C.S. Rao, chairman of the Insurance Regulatory and Development Authority (Irda).
If free pricing were implemented, non-life insurance companies would be able to price their products without Irda’s approval. The free pricing regime will bring to focus the importance of underwriting, as the profitability depends on proper understanding of the risks being covered.
“If majority of companies can prove that they have priced their products on a scientific basis in the current detariffed regime, we arewilling to consider removing the price range for generalinsurance products,” Rao said.
From January 2007, general insurance companies have been given freedom to price their products at a fourth less than the tariff-level price. If they wish to cut prices beyond this price range, the firms have to providecredible statistics to justify the reduction.
“The detariffing would bring greater discipline among firms in terms of proper risk management. It will also provide scope for introduction of new products”, said G.V. Rao, former chairman and managing director of Oriental Insurance Co.Ltd, one of the four public-sector insurance companies.
Irda chairman Rao said all general insurance firms had applied to the insurance regulator to further reducetariffs.
A decision on allowing them to charge lower prices, by a further 10%, would be made after scrutiny of their performance and risk management, he added.
As part of ongoing reforms in the sector, the insurance regulator plans to allow companies to word their own “terms and conditions” by next year. At present, the firms are required to follow common terms and conditions.
If companies are allowed to have their own terms and conditions, they could offer a motor insurance product which provides for full settlement of claims with no depreciation deductions.
Currently, companies charge depreciation in a progressive manner where the deduction increases as the life of the insured vehicle goes up.
“We are working with industry representatives to see that the words used by them mean the same across all companies, so that there is no confusion in the minds of consumer,” said Irda chairman Rao.