Tailor-made covers

Written by Saikat Neogi | Updated: Sep 19 2014, 10:06am hrs
General insurance products are set to get a facelift in terms of standardisation of key terms, differential treatment for filing of retail and commercial products and even product performance review by the insurer. The Insurance Regulatory and Development Authority (Irda) has come out with a report of the working group on file-and-use (F&U) guidelines, which, apart from other issues, look into examining the feasibility of F&U for standard products and treatment of long-term, reinsurance-driven and broker-led products.

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The working group has recommended a shift in product classification from how the product is priced to who buys a product. This is to ensure due diligence for products bought by individual customers who are not much aware of the complexity of insurance products. The group has suggested two classes of products retail and commercial. Products designed and approved for retail customers can be sold to any commercial customer, but not vice versa, say the guidelines. The working group has recommended creation of standard India market wordings for various products, clauses, conditions, add-on covers and the like by General Insurance Council through committees of underwriters and actuaries.

At present, products are regulated by Irda by a system of F&U guidelines that were issued in 2001 when insurance was opened to the private sector. That time, even state-owned insurance companies were asked to file all

products that were already in the market. Insurers were also mandated to stick to the tariff wordings and rates prescribed in the various tariffs. Then, in 2006, the regulator issued an exposure draft on F&U guidelines aimed

to de-tariff the market effective from January 2007.

It was mandated that an insurer cannot vary the coverage, terms and conditions, wordings, warranties, clauses and endorsements in respect of covers that were under tariff till March 2008. The pricing of the product had to be based on appropriate data and technical justification and had to be evaluated and certified by the appointed actuary. The filing of the product to the regulator was accepted only after the insurer had filed board-approved underwriting policy. Analysts say the guidelines served the purpose of regulating, developing and pricing of products in a more structured manner.

However, the regulator felt that the actual process of product development is different from what was envisaged in the guidelines and there is a need to review the norms as per the evolving needs of stakeholders. The working group, headed by Suresh Mathur, senior joint director of Irda, has recommended new F&U guidelines for non-life insurance products, taking into account the changed requirements in the de-tariffed regime. Health insurance products, however, were not part of this working group's evaluation as they are governed by the health insurance regulations issued by Irda last year.

Currently, the F&U system requires all products to be first filed with the regulator. As the process of developing innovative products requires testing, refinement and finalisation, the current system does not afford this freedom of testing and refinement and jumps from experimentation to finalisation. To address the issue, the working group has suggested pilot products where insurers could launch a product for a brief period of time in a pilot area with defined exposure limits after informing Irda. After gaining experience on the product, they may finalise the product and take it through approval process, depending on whether it is a retail or commercial product, say the guidelines.

Amarnath Ananthanarayanan, chief executive officer and managing director, Bharti AXA General Insurance, says the suggestions on moving the guidelines from file and use to use and file is a welcome move for the general insurance industry and will help simplify the process. The proposal for pilot product launch would provide insurance companies the opportunity to test new product offerings in certain markets and get consumer feedback. We are hopeful that the authority would allow the pilot launch to be conducted in a well-spread geography rather than limiting it to, say, North India only, he says.

Both the working group and the regulator felt that the kind of due diligence that was envisaged by the existing F&U guidelines for product development and filing was not evident in reality. With the use-and-file process being recommended for a certain type of products, the need for due diligence in the product development process becomes all the more critical, say the guidelines. The group has recommended creation of a board-led product management committee for a more structured approach to product development and it will be headed by any board member who does not have executive responsibilities. The product management committee will have an internal self-regulatory mechanism that will create appropriate structures and processes for effectively managing the operations in the entire product life cycle.

Under the existing file-and-use system, any product approval is valid till eternity. The working group has recommended that products once approved under any of the approval system will remain valid for five years, after which they will have to be filed again. It has also suggested a structured process of product withdrawal taking after taking into account the interests of policyholders of the product proposed to be withdrawn.