Insurers seek time on pricing

The proposed full pricing freedom to general insurers will have to wait till November 1 this year. At a meeting with the Insurance Regulatory and Development Authority (Irda) yesterday, general insurers have sought more time to better their risk under-writing guidelines to face another round of pricing competition.

Accordingly, Irda has decided to remove the 51.2 per cent cap on discounts from November 1 instead of September 1 this year, industry sources said.

The full pricing freedom was expected to result in another round of pricing war with discounts expected to rise up to 70 per cent in fire, engineering and motor covers. When general insurance was partly detariffed in January this year, insurers were allowed to give discounts on premiums up to 51.2 per cent on individually rated risks.

However, industry sources say many insurers have already violated this restriction on discounts by offering higher discounts than permitted in anticipation of full pricing freedom from September 1.

“At this point it is not clear how to guide clients on what is the right price. The market has not bottomed out yet and with insurance companies testing new bottoms regularly, we can only look to mature markets for guidance on what is a fair price for our clients,” said Pavanjit Singh Dhingra, Vice President, Prudent Insurance Brokers.

While there will not be any major impact in terms of day to day decision making for clients making their buying decision, it is possible that the short time gap between complete pricing de-tariffing and the freeing up of policy terms and conditions planned on January 1, 2008 may not make the process smooth.

“Everyone feels uncomfortable when the pricing gets too low; even clients feel that too low a price would eventually impact the claim paying ability of insurance companies and yet one cannot ignore market realities”, added Dhingra.

Source: Business Standard