Insurance body working on common market wording

New Delhi, June 28 The General Insurance Council, a self-regulatory body of all general insurance companies, along with general insurance companies is working on developing a common market wording. The council hopes to complete the formalities by September end and submit it to the Insurance Regulatory and Development Authority (IRDA) for approval.
The IRDA after a meeting with general insurance companies in Hyderabad on June 11 had asked the non-life companies to finalise a common market wording so that it could decide on considering advancing the second phase of detariffing from April 2008 to January 2008. Market wordings is a document which contains all the policy terms and conditions.
“We are working on developing the common market wording and are likely to submit it to the IRDA by September end. After which it would be up to the regulator as to when the date for introducing the second phase of detariffing would be notified,” Mr K.N. Bhandari, Secretary General of the General Insurance Council, told Business Line.
He added that it would take at least 90 days for the regulator to go through the document and suggest if any changes are required.
Explaining the importance of developing the common wording, Mr Bhandari said: “If total freedom is allowed, then each of the 12 companies might have different ways of wording the policy terms and conditions which might create confusion among the customers. In order to avoid such a scenario, the IRDA has suggested that there should be a common market wording that all the companies have to use.”

No timeframe
Meanwhile, Mr C.S. Rao, Chairman of the Insurance Regulatory and Development Authority, said that they have not set any timeframe for the companies to develop the market wording.
“After the meeting I told the representative of the various companies to come back once they are ready with the document. After the submission it might take at least two to three months for us to go through the contents. Only after this we will be able to decide if the second phase of detariffing can be advanced as requested by the general insurance companies,” Mr Rao said. The Chairman also said that insurers will have to identify the revised terms and conditions, flexibility needed in terms of packaging of insurance products, and alternative wordings in respect of certain areas. “However, in certain conditions there will be no changes in terms and conditions and the interests of the insured will be protected. The initiative has to come from the insurance companies,” Mr Rao said.
Insurance companies also feel that there should be competition on product innovation and packaging of products.

Limiting competition
“At the moment the limitations by the regulator is restricting competition. So what we are asking the IRDA is to do away with the restrictions and allow companies the freedom to rate the policies based on their perception of risks so that the benefits of competition may be enjoyed by the customer,” a company official said.
In the first phase of detariffing, which came into affect from January 1 this year, the IRDA had given freedom to insurance companies to fix premium rates. In the second phase, once the regulatory clearances are obtained, companies will be able to customise products for individual clients.

Source: The Hindu Business Line

Global reinsurers fail in meeting Fac Re contracts

Bangalore June 25 Faced with reinsurers defaulting in meeting claims, non-life insurers are confronted with the first major challenge since the deregulation of the industry.
Highly placed sources said that some global reinsurers had failed to entertain claims made by the primary insurers. This was especially in the case of non-treaty Facultative Reinsurance arrangements. The amount involved is estimated at around Rs 750 crore among all the non-life insurers.
Non-life insurers have entered into Facultative/Excess of loss reinsurance arrangements with some of the East Asian reinsurers. This was over and above their treaty arrangements with national reinsurers and global reinsurers.

Treaty arrangements
In treaty arrangements, the primary insurer cedes a certain percentage of the liabilities of business and the reinsurer is obliged to make good the claims as and when they arise. Facultative Reinsurance (Fac Re) is entered for specific risks that are not covered by treaties. Fac Re is an arrangement where ceding insurers offers individual risks to a reinsurer, who has the right to accept or reject each risk. Excess of loss reinsurance is done for only the portion that is not covered by the treaty reinsurance.
The sources said that most of the Fac Re contracts were placed through international reinsurance brokers. However, the sources added that the brokers had failed to respond for meeting the claims settlements. In fact, some of the primary insurers have approached the Insurance Regulatory and Development Authority (IRDA) for intervention.
But the IRDA Chairman, Mr C.S. Rao, said: "There is no question of our intervention at this juncture. This is an issue to be settled by the insurers and their customers."
However, Mr Rao made it clear, that irrespective of the reinsurers failing to settle claims, primary insurers would be expected to meet their obligations to policyholders.
Consequently insurers would have to take a hit on their own respective balance sheets for claims settlements.
Non-receipt of reinsurance claims would have to be provisioned and treated as bad assets in the balance sheets of the private sector insurers. This would though substantially damage solvency margins. Insurers are currently expected to maintain a solvency margin (the excess of value of assets and capital in excess of the insured liabilities) of 150 per cent.
The sources said that such a situation was taking place when reforms in the sector were entering the second phase. Private sector insurers have focused on building business, and ceding the same to overseas reinsurers in a bid to take advantage of high commissions and build high toplines. The commission till last year were as high as 40 per cent, though this has now declined to less than half.
Besides the major global reinsurers are unwilling to accept all the post deregulation tariffs and accordingly have opted to cherry pick. This has prompted private sector insurers to increasingly shift to second rung companies in East Asia, through intermediaries for complying with solvency.

Source: The Hindu Business Line