Insurers may get to set premiums

Beginning 2007, general insurers will be free to set premiums and determine the terms and conditions of insurance contracts. This is after the Insurance Regulatory Authority of India's proposal to free tariff insurance premium from all lines of insurance business.

Irda hopes to discontinue tariffs before December 31, 2006 and business lines other than automobile are to be the beneficiaries of the move. This is because of the sizeable share of automobile premium in the overall premium collection and the large number of policyholders involved in this line of business.

All insurers will start with policy terms and conditions as per existing tariffs. However, an insurer may review the terms and conditions and recommend changes for use before May 1 2006. Risks which are rated on the basis of international market terms may continue to be governed by terms and conditions acceptable to the reinsurance markets of repute.

With December 31, 2006 being the deadline, insurers have to decide on their underwriting set-ups before December 1, 2005. The target completion date for preparing the interim internal tariffs is March 31, 2006. According to Irda, the function of underwriting will be independent of business development functions.

Arun Agarwal, chief executive, Cholamandalam MS General Insurance Company Ltd, said, "It has been a long-awaited demand and we are happy that the regulatory authority has come out with a specific plan of action. As far as our company is concerned, we are already prepared with regard to the rating mechanism and the underwriting set-up."

With the abolition of tariffs, the role of the Tariff Advisory Committee will be restricted to collection of data on premiums and claims, their analysis and dissemination, reporting to Irda on the underwriting health of the market, constituting expert groups to look into underwriting issues, imparting training to underwriters at the market level and attending to public grievances on non-availability of insurance.

Ajit Narain, managing director and CEO, Iffco Tokio General Insurance Company said, "Freeing tariffs will increase competition among the general insurance companies. It is good that Irda has prescribed a road map for this, which will help in pricing the products."

VN Bhargava, AGM, Oriental Insurance Company, said, "We were waiting for the tariffs to be removed from the market. With the road map, we are moving forward and this is good for the productivity of the company."