Detariffing in general insurance

Detariffing regime is an era whereby general insurance providers offering fire, engineering, mediclaim and motor insurance have been given the freedom to decide the premium to be charged. The cost for an insurance policy was earlier decided by the Tariff Advisory Committee (TAC).

This was implemented in two phases — first started on Januray 1, 2007, when the insurers were permitted to increase or reduce premium by 20% on both sides from their then existing pricing. During this phase the product terms and conditions couldn’t be revised.

In the second phase, which came into effect on March 2008, complete freedom on pricing had been granted, including customisation of product according to each individual.

So, if you are looking for insurance, be ready to be bombarded with questions in the detariffed regime. People seeking fire, engineering and motor cover would be subjected to a rigorous enquiry, before being issued a policy, especially if they have a history of claiming damages.

The premium amount of an insurance policy can be either loaded or discounted, based on several risk factors, as against the earlier norm of fixed premium prices for a particular sum assured in a category.

A Bihar resident asking for coverage against floods would be quoted a higher premium, while a person from Rann of Kutch would be given discount. The reason being, Bihar is geographically at a higher risk of flood as compared with the Rann of Kutch. Thus, the insurance company sees more chances of the Bihar policy holder claiming flood damages.

Similarly, if you want to insure your car, the policy premium would be based on the model, colour and type, apart from your claims history. The premium amount quoted to a person seeking an insurance cover in an accident-prone city is higher.

Therefore, the due diligence process for picking up a general insurance product would become more time consuming, as you would not get a fixed chart of premium amounts.

The insurance company would first ask you to answer a lengthy questionnaire and then provide a premium chart based on your answers and declarations.

Depending on five risk factors, an insurance provider would either ask you to shell out extra bucks for the cover or offer heavy discounts.

However, experts warn consumers to be careful of falling for excessive discounts. “The provider who is offering tempting discounts may later ask you to pay additional costs under the disguise of service charges or investment charges,” said an industry observer.

Instead of just going for discounts, investors should also check for the services an insurance company provides, such as a cashless claims process or a shorter claim-waiting period.

Insurance cost for a dark colour car would be a level higher because such cars are subjected to higher accident risks. Further, insurance companies would hike the premium amount for certain car models, having a low-safety record.

Earlier, you had to pay a fixed premium, but now the premium would differ, based on the model of the car, the colour and the roads that it would hit.

As a result, the due diligence process for picking up a general insurance product would become more time consuming, as you would not get a fixed chart of premium amounts.

The insurance company would first ask you to answer a lengthy questionnaire and then provide a premium chart based on your answers and declarations.

Depending on five risk factors, an insurance provider would either ask you to shell out extra bucks for the cover or offer heavy discounts.

However, experts warn consumers to be careful of falling for excessive discounts. “The provider who is offering tempting discounts may later ask you to pay additional costs under the disguise of service charges or investment charges,” said an industry observer.

Instead of just going for discounts, investors should also check for the services an insurance company provides, such as a cashless claims process or a shorter claim-waiting period.

Source:
Team DNA / DNA MONEY