IRDA sets November date for total pricing freedom

MUMBAI: Insurers wanting complete freedom in pricing insurance policies may have to wait till November. The Insurance Regulatory and Development Authority (IRDA) has decided to give the industry more time, as boards of companies will now have to decide on the extent of leeway that they have in pricing of products. Earlier, insurers said complete freedom in pricing would bring down property insurance cost down by 20%. This reduction was expected on the back of the fall in rates that had already taken place since January this year, following the dismantling of the tariff regime. However, even after detariffing, the regulator had placed restrictions on pricing by setting a floor rate which was up to 50% of the old tariff rates. These floor rates, too, are set to go from November. In the free-pricing regime, boards of non-life insurance companies will have far more responsibility in deciding the extent to which an insurer can overstretch pricing. IRDA has asked insurance companies to ensure that the board fixes a ceiling on an insurance company’s ability to retain risks for large projects which require specific reinsurance cover. The regulator has also said that once the ceiling has been decided by their boards, insurance companies should not play around with retention levels. In the past, public sector insurers had used their balance sheet strengths to offer terms to customers better than what was being offered by the reinsurer. The issues of free pricing and reinsurance terms were taken up by the regulator in its General Insurance Council meeting with non-life insurers in Hyderabad on Monday. Speaking to ET, Iffco Tokio General Insurance MD Ajit Narain said companies have already stopped undercutting each other and prices have started to firm up in business segments such as group health. He pointed out that insurers have turned cautious because of floods across the country which could result in higher claims. Other insurers feel that some of the discounting that has been happening clandestinely will now take place openly. According to Prudent Insurance Brokers vice-president, Pavanjit Singh Dhingra, the highest discounting was expected to take place in engineering and some infrastructure projects where there are rumours of deals were being struck at 10% of tariff rates. He feels that the pricing would stabilise around April 2008 when the next round of big renewals take place. There was also a chance that prices would firm up if there was a natural catastrophe like flood. He added that pricing would be also determined by National Reinsurer GIC Re which now has large exposures in Africa and the Gulf region. Any increase in international claims could result in a tightening in India even if there are no claims locally.
Source:Economic Times