Interview with Arjun R Dudani, secretary, Tariff Advisory Committee (TAC) Arjun Dudani, secretary, Tariff Advisory Committee, speaks to Jayshree Bose of FE on how TAC is changing tack to move into a liberalised scenario.

The Tariff Advisory Committee is more of a statutory rather than an advisory body, fixing tariffs for adoption in the nationalised non life insurance sector. How is it different from its counterparts in open markets?

The Tariff Advisory Committee was established as a statutory body with effect from the commencement of the Insurance (Amendment) Act 1968, to control and regulate the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business. The mandate given to TAC clearly indicates that it is a body which is there to regulate rates.

Most of the markets around the world have no tariffs and the rates quoted are based on various conditions which among other include technical appraisal of the risk, the capacity of the market, the level of competition, the specific features of the risk and the insurer’s experience world wide. Although there is no tariff regime in many countries,the various markets do have their associations which take up issues relevant to the insuring public and industry with the government, and help members in devising accounting norms, streamling taxation matters. Some of them give reference rates based on the claims experience based on the of statistical data submitted by the companies. The Association of British Insurers in U.K., Property and Casualty Rating Organisation of Japan, Automobile Insurance Rating Organisation of Japan are some examples of such associations.

Doesn’t this system of rigid and uniform tariffs, regardless of the quality of management, pose a major hazard for insurance companies and an unnecessary premium burden for the better-managed insureds?

At present in India, fire, engineering, workmen’s compensation and some other areas are tariffed. However, an attempt is being made by the industry to bring about uniformity in its working to avoid confusion at the underwriting level.

TAC, which is now shares a common chairman with the IRDA, is already said to be changing tack, even though liberalisation is some time away. What are these changes?

The TAC as a statutory body has not been exposed to any political pressure in tariff fixation function in sensitive areas like workmen’s compensation tariff, etc. The liberalisation in the context of our working has been in the areas of inspection of risks, approval of products and equipments.

As far as the changes are concerned TAC is working on simplification and rationalisation of various tariffs, e.g. the fire tariff is being revised to have one rate for its various blocks. The shifting of stock from one section to another today may result in breach of policy conditions and delays in claims settlement if it cannot be conclusively proved in which section the loss took place. This is because various sections of an industrial unit carry different insurance premia. This may lead to delayed settlement of claims. A single weighted average rate the insurers can avoid such a situation. Moreover, there would be only one rate with no add-ons. The policy too is being simplified.

Furthermore, Industrial All Risk Policy can now be directly underwritten by the insurers. The inspection or risks earlier carried out by TAC has been decentralised and given to insurers. Moreover tariffs which were confidential and for the use of insurers only’ are being freely sold. We also intend to go online soon.

I personally feel that there should be no competition for small and simple risks as the rates fixed for such risks are based on specific data received from insurance companies. However, a few steps towards customisation and granting of discounts etc. need to be taken up as the market opens up e.g. the reference loss cost rate may be used as a guide rate by insurers which can be varied according to the individual features and experience of the risk. This will provide necessary flexibility to the insurers and give scope for merit based rating for the insureds.

But, TAC will still be regulating tariffs-what of price competition in an open market where the customer will benefit.

In the socialistic pattern of society a need for more and more controls was felt. Some of the systems in vogue today are the result of this philosophy. However as the market opens up the TAC too will have to move forward. Let me mention here that the stability of the market is very important. However, the TAC will have to look into its internal procedures and gear up to update its rating structure, terms and conditions of the policies immediately, once the need is felt by the market. Speaking about the international market, particularly with reference to energy risk, one can say that there is lot of volatility due to excess capacity available in the market. This makes the budgeting exercise for the client and insurers very difficult. We would certainly like to avoid this kind of situation.

What is the crux of the controversy surrounding motor vehicle insurance? Will rates be increased?

There is really no controversy surrounding motor vehicle insurance rates. The Motor Accident Claims Tribunals have been set up to decide the compensation payable to the victims of the road accidents. These tribunals award interest along with the amount of compensation which puts additional burden on the insurers. Most of the insurers have reported underwriting losses due to the adverse claims ratio of this line of business. However, a few things need to be looked at e.g. the accounting system, provision of outstanding claims, the actual settlement of Third Party claims through Lok Adalats and other related matters. The provision of interest in the outstanding T.P. claims is the area which needs to be thrashed out. The TAC on its part will consider the matter of rate fixation for motor vehicles for both Own Damage and Third Party - objectively and will take necessary timely action in the matterafter justification is given. In this respect the timely submission of comprehensive data by insurers assumes great significance.

What do you perceive TAC’s role to be in a liberalised scenario?

It is very difficult to predict, but some of the changes effected during the last 12 months surely indicate the TAC’s desire to move ahead. Moreover the role of TAC will depend on the extent of liberalisation. One of the important questions to be considered in future may be to work as Data Bank for the Industry. Others are technical appraisal of the risk and publishing of reference rates for the various risks so that the insurers can have flexibility to offer customised covers and quote merit based rates.