General insurance companies will soon be able to launch 'pilot products' for a short period of time, if the Insurance Regulatory and Development Authority (Irda) accepts the recommendation by the working group on ‘file-and-use’ guidelines.
The working group’s report, released on Monday, says insurers can launch pilot products “for a short period of time in a defined pilot area with defined exposure limits on a pilot basis, after informing Irda”. Upon gaining experience on the product, they can finalise the product and take it through the approval process.
Under the existing file-and-use system, all products should be filed with Irda before these can be used.
While setting up the working group to review the file-and-use norms for the general insurance sector in April this year, Irda had said a review of the extant guidelines would be undertaken.
The working group had Suresh Mathur of Irda as its chairman, with six other members from the non-life sector and one convenor from Irda.
While the current classification is based on “how the product is priced', the working group has recommended a classification on the basis of 'who buys a product'.
In order to respond to customer requirements faster, insurers have been demanding a use-and-file system for certain products to co-exist with the file-and-use system. Products under the former category will first be cleared by the company’s product management committee and then sent for Irda’s approval and only then can they be launched. On the other hand, products under use-and-file can be sold immediately upon the product management committee’s approval, with intimation to Irda.
Keeping in mind the average consumer not fluent in the complexities of insurance, the working group has suggested there be just two classes of products - retail and commercial. The former is meant for retail customers and the latter for customers other than individuals (companies, trusts, associations, societies, government entities, etc).
The working group has recommended a use-and-file system for commercial products, while retail products will continue to be governed by file-and-use.
The working group has recommended the creation of a board-led product management committee, headed by a board member who does not have executive responsibilities. The committee will also include the CEO, Appointed Actuary or the Chief Underwriter.
“The role of product management committee will be akin to the role of regulator within an insurer. The Product Management Committee affords an internal self regulatory mechanism that will create appropriate structures and processes for effectively managing the operations in the entire product lifecycle. All products either under File and Use or Use and File will be approved by Product Management Committee,” the report notes.
Notably, the working group has suggested that if Irda doesn’t revert on file-and-use products within 30 days of applying, insures can launch the product. “With a strong internal due diligence system and board-led Product Management Committee’s approval, it is expected that Irda should revert with its observations on the products under File-and-Use within 30 days of receipt of product filing, failing which insurers may be free to sell the product,” it noted.
Products of monoline insurance companies (insurers selling only one kind of product) fall in commercial category and hence would follow the use-and-file system of product approval. However, for the retail products of these companies, if any, they will need to follow the file-and-use system. Here, minor modifications in the product need not be filed with Irda - the company’s internal product management committee can approve those subject to certain confirmations from the Appointed Actuary.
Each product will have a unique identification number, which will be allotted through an automatic online process.
The report also notes under the existing file-and-use system, any product approval is valid till eternity. “This is proposed to be changed and it is recommended that products once approved under any of the approval systems will remain valid for five years after which they will have to be filed again.”
According to the report, pricing flexibility has been a vexed issue between the insurers and Irda. The working group has recommended that pricing flexibility be allowed by the Appointed Actuary to the extent of acquisition cost and profit margin built in the product, “subject to Irda approval to this deviation and an overriding condition that the combined ratio of the product should remain below 100 per cent”.
Irda has sought comments on the report within 21 days.
The working group’s report, released on Monday, says insurers can launch pilot products “for a short period of time in a defined pilot area with defined exposure limits on a pilot basis, after informing Irda”. Upon gaining experience on the product, they can finalise the product and take it through the approval process.
Under the existing file-and-use system, all products should be filed with Irda before these can be used.
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The working group report notes that developing innovative products requires experimentation, testing, refinement and finalisation. However, the current system does not afford the freedom of testing and refinement; it jumps from experimentation to finalisation, the report adds.
While setting up the working group to review the file-and-use norms for the general insurance sector in April this year, Irda had said a review of the extant guidelines would be undertaken.
The working group had Suresh Mathur of Irda as its chairman, with six other members from the non-life sector and one convenor from Irda.
While the current classification is based on “how the product is priced', the working group has recommended a classification on the basis of 'who buys a product'.
In order to respond to customer requirements faster, insurers have been demanding a use-and-file system for certain products to co-exist with the file-and-use system. Products under the former category will first be cleared by the company’s product management committee and then sent for Irda’s approval and only then can they be launched. On the other hand, products under use-and-file can be sold immediately upon the product management committee’s approval, with intimation to Irda.
Keeping in mind the average consumer not fluent in the complexities of insurance, the working group has suggested there be just two classes of products - retail and commercial. The former is meant for retail customers and the latter for customers other than individuals (companies, trusts, associations, societies, government entities, etc).
The working group has recommended a use-and-file system for commercial products, while retail products will continue to be governed by file-and-use.
The working group has recommended the creation of a board-led product management committee, headed by a board member who does not have executive responsibilities. The committee will also include the CEO, Appointed Actuary or the Chief Underwriter.
“The role of product management committee will be akin to the role of regulator within an insurer. The Product Management Committee affords an internal self regulatory mechanism that will create appropriate structures and processes for effectively managing the operations in the entire product lifecycle. All products either under File and Use or Use and File will be approved by Product Management Committee,” the report notes.
Notably, the working group has suggested that if Irda doesn’t revert on file-and-use products within 30 days of applying, insures can launch the product. “With a strong internal due diligence system and board-led Product Management Committee’s approval, it is expected that Irda should revert with its observations on the products under File-and-Use within 30 days of receipt of product filing, failing which insurers may be free to sell the product,” it noted.
Products of monoline insurance companies (insurers selling only one kind of product) fall in commercial category and hence would follow the use-and-file system of product approval. However, for the retail products of these companies, if any, they will need to follow the file-and-use system. Here, minor modifications in the product need not be filed with Irda - the company’s internal product management committee can approve those subject to certain confirmations from the Appointed Actuary.
Each product will have a unique identification number, which will be allotted through an automatic online process.
The report also notes under the existing file-and-use system, any product approval is valid till eternity. “This is proposed to be changed and it is recommended that products once approved under any of the approval systems will remain valid for five years after which they will have to be filed again.”
According to the report, pricing flexibility has been a vexed issue between the insurers and Irda. The working group has recommended that pricing flexibility be allowed by the Appointed Actuary to the extent of acquisition cost and profit margin built in the product, “subject to Irda approval to this deviation and an overriding condition that the combined ratio of the product should remain below 100 per cent”.
Irda has sought comments on the report within 21 days.