The Insurance Regulatory and Development Authority of India (Irdai) is planning to come out with a final report on telematics in motor insurance by the end of current financial year. Regulator also asked insurers to come out with standardise products which could also reduce mis-selling in the industry.
Speaking at the CII’s 20th Insurance and Pensions Summit, Irdai chairman Subhash C Khuntia said, “Selling products that are standardised in design so that people are not misled… If we have to put fixed deposits in a bank, we have no problem with the terms and conditions because all banks will have similar terms and conditions. Similarly, we can come out with simple insurance products like third-party insurance, so that everyone knows what it involves.”
He also added they were going through the final report on telematics which will motivate people with better behaviour. Telematics insurance is motor insurance where a telematics box is fitted to a vehicle. The telematics box (also commonly known as a black box), then measures various aspects of how, when and where the vehicle was driven.
Currently, motor insurance in India is being priced based on parameters, such as the model, capacity, geographical use, of the vehicle. But in actuality, there are various parameters to be considered in the assessment of risks that a vehicle is exposed to, such as upkeep of the vehicle, how frequently it is driven, what distance it is driven for, the quality of roads it is driven, the driving habits of driver and so on. Consideration of these factors will lead to a more meaningful risk assessment and provide a more accurate mechanism for pricing.
Speaking on the sidelines of the event, the chairman also urged insurance companies to decide prudently on their investments while being asked on the recent downgrades of bonds of IL&FS and IL&FS Financial Services. “Suppose there is downgrade in the rating, it is up to insurance companies to take action against what to do with investments and how to retrieve what is maximum. Normally, when there is a downgrade, they shouldn’t continue with it. They will have to withdraw and put it somewhere else,” added Khuntia. He also clarified that right now, there is no plan to change any norms with regards to insurance companies IPO rules.
Risk-based capital regime
The regulator also said insurance companies can now raise 25% of their net worth from tier-II bonds and raising it further would be only possible when insurance companies move to risk-based capital regime. Last year, Irdai had set up a 10-member steering committee to help implement the new risk-based capital regime by March 2021.