The Insurance Regulatory & Development Authority (Irda) has decided to launch a free-pricing system for the Rs 25,000-crore domestic general insurance industry from January 2008. The sector regulator took this bold decision on 14 December after discussing the issue at length with the General Insurance Council (GIC), the official representative body of the general insurance industry.
Effectively, the general insurance companies, including the four state-owned insurers and nine private sector general insurers with international partners, will be free to decide the pricing of their products on their own. Industry analysts believe that this move will see price reductions across all products, especially for corporates.
Speaking to FE, GIC secretary general KN Bhandari confirmed this development and said the council would take Irda into confidence about the market discipline and preparedness of the market to implement the free-pricing system smoothly.
?In day or two, we will have the final round of discussion with the regulator about the preparedness of the players to enforce market discipline while competing with each other. Without discipline and training it would be difficult to implement a free-pricing regime,?? Bhandari said.
Although Irda had launched detariffing in Jaunuary 2007, it made it mandatory for players get their rating approved and had simultaneously issued fiats from time to time to limit the extent of discount general insurance players could offer its customers, especially corporates.
Almost 50-60% of the premium that companies earn is sourced from corporate accounts and in a short span of time prices had fallen by 60-70% in all profitable corporate accounts. It has also reduced the premium growth for players and several were expecting a fall in the profit in 2007-08.
Few aggressive players were even seen adopting unfair practices to poach accounts from incumbents. Under these circumstances, where market discipline has been a matter of great concern, Irda had earlier hesitated to push for free pricing in the market. However, observers point out that it was getting too much of a hassle for the regulator to enforce disciplinary system as players kept finding new ways to bypass regulations.
The regulator as early as December 1, had issued fresh flats to the domestic general insurance companies restraining them from undercutting each other through heavy discounts in premium pricing. Irda had reportedly hauled up one prominent player indulging in such practice to hasten its market share. The regulator had even asked insurance companies to recall their quotes that have been sent to their customers. It is now expected that the market players would follow risk-based pricing through a proper underwriting system and not resort to unprofitable undercutting.