While welcoming the idea of insurance regulator to allow general insurers to launch new policies on pilot basis, industry officials differ on the issue of limiting the pilot market geography, volume of business and the treatment of expenses/losses.
On Monday a working group set up by Insurance Regulatory and Development Authority (IRDA) in its report said the current file-and-use system requires all products to be filed with IRDA before these can be used.
"The process of developing innovative products requires experimentation, testing, refinement and finalisation. The current system does not afford this freedom of testing and refinement, and jumps from experimentation to finalisation," the report said.
Hence, the working group has suggested a new category of insurance policies, 'Pilot Products', which the insurers may launch for a short period of time in a defined area on a pilot basis after informing IRDA.
"After gaining experience on the product, they may finalize the product and take it through approval process depending upon whether it is a retail product or commercial," the group recommends.
Speaking to IANS, Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General Insurance, said: "Pilot products are okay if it is not restricted to one specific geography. Pilot launches should be allowed in multiple locations across the country so as to get good sample size."
A senior actuary not wanting to be named told IANS: "The accounts of the pilot product must be separated to remain distinct as to all aspects of the business, risk, preliminary expenses, other expenses, claims reported, claims paid, claims repudiated etc so that any loss resulting from the launch should not be commonly shared between the normal portfolio and the pilot portfolio."
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According to him, losses on pilot products should be accounted from the shareholder fund.
"If the pilot product is a long tailed risk then the position is more complex. Ideally pilots should be expected to have short tailed risk profile only and the entire claims arising from the risk should manifest within three years at the most," he added.
He also said that the volume of business to be done under the pilot should also be limited. This purpose of this restriction is to forestall any temptation to launch a product as pilot with speculative intensions which will harm the protection of the policyholders who form the normal business volume.
However, Ananthanarayanan disagrees with the views of the actuary.
"If the losses are to be borne by the shareholders what about the profits? Profit cannot be shared separately with the shareholders," he said.
Similarly, he said, there should not be any restriction on the volume business to be done under the pilot project. The volume restrictions, long tailed risk profile may be fine for life insurane business but not for general insurance.
The only long tailed risk policy in the case of general insurance is the motor third party policy and it will not be launched on a pilot basis, Ananthanarayanan added.