Detariffing in general insurance notified

Font Size

Print

Feedback

Email

Discuss

Related Articles

ICICI Prudential Life posts 56% premium growthLIC raises stake in Union Bank of India to 5.04 pc...Kotak Mahindra posts 114 pct growth15,000 Jeevan Bharati I policies sold in 3 months:...

Ending all speculations about the launching of the detariffing regime in the general insurance industry, Insurance Regulatory & Development Authority (Irda) has finally notified the abolition of the tariffing regime on Monday. “Now it is final and Irda is ready to launch the new regime from January 1, 2007,’’ said an Irda source. Detariffing will allow the general insurers to fix their own pricing for almost 70% of the general insurance products which was earlier determined by the Tariff Advisory Committee, supervised by Irda.

Earlier, Irda had said that the domestic general insurance companies would be allowed to change the pricing of products—but not the terms and conditions of the policy till March 2008. Irda has also described the operations of third-party motor insurance business post detariffing. The regulator had decided to form a pool to be participated in by all the general insurers to function as a parallel entity to give policyholders an alternative choice in motor insurance.

In the detariffed scenario, insurance companies will arrive at premiums based on their assessment of risk on a case to case basis. Customers with a good risk profile would enjoy lower premiums. At the corporate level, intra-portfolio cross subsidization will be replaced by product-level pricing, as a result of which fire insurance premiums may see some reduction. Conversely, group health and marine insurance premiums are likely to move up with companies reviewing their coverage in order to optimize pricing. Motor insurance is expected to gravitate towards risk based pricing.

Insurers are building robust and practical rating models that are able to arrive at the correct premium with the available data. Initially the market may be volatile as insurance companies test their premium rating models in a competitive environment but over time this would stabilize.

The ongoing validation and refinement of these models with their underlying assumptions will be based on the subsequent claims experience and the overall portfolio profitability. The comfort of an anchor tariff rate has made the industry more transaction focused and one will now be required to transition towards a business and P&L driven approach. Transparency, corporate governance and fairness in dealings will define the relationship between insured, insurer and intermediary and ensure a win-win for all the constituents.