General insurers to get full pricing freedom

Insurance Regulatory Development Authority of India (IRDA) has decided to give full pricing freedom to general insurance companies from January 1, 2008.

In a letter to the CEOs of general insurance companies, the regulator said that except for Motor Third Party rates, insurers will be free to quote premium rates that they have filed with IRDA for all other lines of business (whether a new policy or a renewal policy).

IRDA has said that insurers will have to get the rate schedules and rating guides approved by the board of directors of the insurance company before filing them with the IRDA. It has also said that it expects the rates condition to be viable so as to produce an operating ratio (incurred claims plus commission and expenses of management) not exceeding 100 per cent on a gross underwriting basis.

For policies which qualify as large risks (where the sum insured is Rs 2500 crore  and  above), insurers have to offer the corporate client the same rates, terms and conditions as those quoted by reinsurers with no variation.

IRDA has also said that insurers shall not be permitted to cancel existing insurances and replace them by new insurances at revised rates. However, the insured policyholder has the right to cancel his insurance in which case, a premium at short period scale as applicable shall be chargeable.

In a meeting with IRDA chairman last Friday, CEOs of general insurance companies had discussed the issues relating to the removal of controls on pricing of risks. The CEOs of insurance companies had assured the regulator that high  standards of underwriting and market conduct will be maintained by all insurers even after the price controls are removed.

Regarding changing the terms and conditions of policies, wordings, endorsements, warranties and clauses set out in the erstwhile tariffs, IRDA has said that it will examine the fresh market wordings filed by the General Insurance Council and will take the views of various stakeholders, till then the existing terms and conditions will continue.