Insurers plan roadmap against cartelisation

Non-life insurers are in the process of preparing a roadmap to ensure that none of them engage in cartelisation when the Insurance Regulatory and Development Authority (Irda) totally lifts the price controls on fire and engineering insurance from September 1. The code of market conduct is being prepared under the aegis of the General Insurance Council (a self-regulatory body of the 12 non-life insurance companies) in this regard.

"The code of market conduct will ensure there is no cartelisation among insurers, that they don't indulge in restrictive practices, and will ensure that insurance is available to the consumer at reasonable cost. It is to ensure that the insured is not put to any disadvantage by insurance companies charging arbitrary rates," said K N Bhandari, secretary general of the General Insurance Council.

The code of market conduct has to be adopted and filed with the Irda by July 31.

The Irda, on June 25, sent a circular to the CEOs of all non-life insurance companies stating that effective September 1, 2007, the control on the rates of fire, engineering and workmen's compensation would be totally removed.

However, the freedom is subject to two stipulations. Firstly, insurers should prepare a code of market conduct and secondly, they have to file their base rates and the procedure to be followed for rating of individual risks based on the risk features and the range of loadings/discounts with the Irda. However, this time, there will be no approvals required from the Irda. The circular says that insurers will have to adopt a code of conduct through the General Insurance Counicl on matters relating to market conduct and competition as a matter of urgency and abide by such a code in letter and spirit.

The non-life insurance industry was detariffed from January this year. Though the Irda lifted price controls on insurance products (fire, engineering and motor) from January 1 this year, it restricted the discounts insurers could give, fearing a price war between them.

Insurers can give maximum discounts up to 51.25 per cent of the erstwhile tariff rates on individual rated products (those risks, where the sum insured is more than Rs 10 crore), and up to 43.75 per cent in case of class rated products (those risks, whose sum insured is less than Rs 10 crore).

Source: Business Standard