Insurers may get to innovate before april

NEW DELHI: The general insurance industry is likely to get flexibility to introduce innovative products much earlier than the April 2008 deadline set by the insurance regulator. Indications are that the current freeze on innovation would be scrapped by the end of this year. The industry has been asked to prepare a draft by September this year on the changes that should be introduced to make the policy regime more liberal. Once the new norms are approved, insurers will be able to make changes to the terms and conditions of products offered by them. This is expected to result in lower premia for customers. “We have asked general insurance companies to formulate a draft of the standardisation of clauses. The industry is of the view that they should now be able to make changes to products other than just pricing. After examining their recommendations, we may consider advancing the date from April 2008,” Insurance Regulatory & Development Authority (Irda) chairman CS Rao said. After free-pricing was allowed in January this year, policies were driven solely by pricing decisions. The costs of policies have come down and are expected to fall further once insurers get leeway to issue customised policies. The general insurance industry feels it is ready for the next stage in detariffing. But analysts feel companies are still in the process of building their databases. Companies will have a better idea of pricing risks by examining the claims ratio based on the databases of the recent past. Pricing, rather than underwriting, is raking in volumes under the free-pricing regime. This will change after product innovation is allowed. “Prices are expected to fall further, when each company gets more innovative with the terms and conditions of policies. It will require companies to have a thorough understanding of the risks they will be underwriting. It will not be an open-and-shut case of giving discounts to woo policyholders,” an industry insider said. After detariffing, Irda restricted discounts to 20% for fire and engineering, and 10% for motor rates for the first month till filed rates were approved. The bands prescribed further allowed an additional 25% discount on new rates. So the effective rate of discount is up to 45% on the old rates. While sections of the Rs 22,000-crore industry have been critical of Irda’s prescription by capping discounts, the regulator had only exercised caution to avoid a price war.
Source: Economic Times