Premiums should ensure the product or add-on is viable, generating a reasonable margin without any cross-subsidisation from any other product or add-on
In order to protect the interest of policyholders, Insurance Regulatory and Development Authority of India (Irdai) has issued draft regulations for the designing and pricing of general insurance products. The non-life insurance products will be classified into retail and commercial products on the basis of who buys them or on the basis of sum insured as specified by the regulator. The retail and commercial products shall be distinguished from one another with a suitable name change or prefix or suffix as the case may be and need to have a separate Unique Identification Number (UIN).
Product design & pricing
The draft guidelines note that the design of general insurance products will have to consider policyholders’ interests in terms of suitability and affordability while catering to their changing needs through evolving risk coverage. The product or the add-on cover must cover an insurable risk involving a real risk transfer and adhere to the basic principles of insurance.
The pricing of products will be based on appropriate data and technical justification and insurers will have to factor in risk exposure, claims/loss experience, expenses, reinsurance, solvency requirement, and factor in a reasonable amount of surplus and economic cost of capital. The premium rates will neither be excessive nor inadequate and should aim at ensuring that the product or add-on is viable, generating a reasonable margin without any cross subsidisation from any other product or add-on.
The regulator has underlined that pricing will be based on sound actuarial principles with supportive data and the discounts or loadings offered should be on objective basis with appropriate justifications and duly certified by the appointed actuary. Insurers cannot apply differential rates to similar risks. In case the rates are based on the generally prevailing market level of premium rates, the insurer must demonstrate the reasonableness of the variation from the currently prevailing level of rates and viability with respect to its own underwriting and risk management standard.
For insurance products sponsored fully or partially by the state and Central government, insurers will have to adhere to the conditions of the scheme notified by the appropriate government. They are also required to modify the conditions as per the changes notified by the government from time to time. All packaged products will have to comply with the relevant guidelines regarding accounting of premium, connected expenses, claims and expenses issued under by the regulator.
All pilot products have to explicitly mention “Pilot Product” as a prefix or suffix to the product name. A pilot product may be converted into a regular product based on the experience gained. However, if a product is withdrawn, existing policyholders will be allowed to choose another existing product which may or may not be comparable to the pilot product.
The draft regulations say add-on should follow the base product, its classification, filing and approval procedures. The add-on to a base policy, however, shall not change the fundamental nature of the base product. The add-on may have its own limits and deductibles. The aggregate premium of all add-on plus premium under optional covers built into the base product will not exceed 100% of the premium for the base product. The optional covers included as part of the base product will not fall under the category of ‘add-ons.’
Insurers can withdraw a product or add-on and submit to Irdai with justification for such a proposal. The existing annual and long-term policies which are already issued before withdrawal of an existing product shall be allowed to remain in force till their respective expiry dates.
Insurers will bear the final responsibility for any deficiency in service or complaint arising from add-ons. They will have to address the grievances of policyholders relating to these assistance services.