Pricing fetters to continue for general insurers

NEW DELHI: The April 1, 2008, deadline, when insurers could have complete freedom to design new products and price them accordingly, now stands deferred. Ringing in caution once again, the Insurance Regulatory & Development Authority (Irda) is of the view that the general insurance industry is not yet prepared for complete free pricing since it is concerned about the changes being made to the policies.

Policyholders should not only understand the extent of coverage offered in the new policies, they should also know how the new features are priced. In other words, are they paying more or less for the same coverage and, if more, how much and for what. When premiums fall unreasonably low, far greater risks will be taken at relatively lower costs. Customers run the risk of buying cheap and foregoing important risk covers.

Irda chairman C S Rao said, ���We would require more time to look at the wordings carefully. Over the next few months, we will move to detariffing. There are two issues here: one, we should examine the changes to the standard wordings. Second, we should also look at deviations from the standard wordings. We may approach it segmentwise. While the fire policies are largely comfortable, we would like to look at the motor portfolio more closely. We need more clarification here.��� The industry has raised a few issues. The General Insurance Council and the Irda is examining them, he added.

���However, if products conform to the standard wordings, the policies can be issued without filing with Irda, since it will be difficult for the regulator to oversee so many individual changes,��� Mr Rao said.

When the industry was introduced to free pricing on January 1, 2007, Irda had capped limits on the discounts that insurers could offer policyholders in a bid to control a price war, thus reducing chances of undercutting. However, the last year witnessed premiums falling by as much as 70% over the original rates.

���The regulator feels that by opening up the wordings, it might risk a race to the bottom as far as prices are concerned, in the sense that new features hitherto untested may be offered at lower rates than existing features in policies. The consequences of changes to policy wordings is either restricting or increasing coverage. Irda would not risk lesser coverage in the middle of a price war,��� an industry source said.

It is understood the insurers are not in favour of tweaking their products too much, in view of the reinsurance treaties that are renewed every financial year.