Insurance firms line up better product pricing

Insurance companies now a days are raking their brains over such questions as what is the aggregate risk concentration at M G Road in the heart of the financial capital?

How much are motorists in Chennai subsidising those in New Delhi where motor claims are among the highest? What kind of sickness is prevalent among senior citizens? This number crunching game in on in preparation for a detariffing scenario.

Today a motorist in Chennai would pay the same premium as his counterpart in New Delhi. This is a fall out of the re-zoning and re-rating of the Indian motor insurance business by the Tariff Advisory Committee (TAC) in order to bring about equality in motor insurance premiums across India. Premiums today are based on the model and age of a car. But this criteria fails to take into account that losses are maximum in Delhi where vehicle thefts are the highest.

"Insurance business is data-driven, but Indian companies have failed to set up any centralised data depository till now, which would have a great bearing on how products should be priced," said Zubin Pardiwala, chief operating officer, Insurance Assist India (IAI).

The need was never there to price products as per the risk involved. Today over 70 per cent of the insurance business operates on a tariff basis.

This means that the price of an insurance product is decided by the Tariff Advisory Committee (TAC) without taking into account the actual losses. IAI is working with various general insurance companies to collate the available data on a pilot basis, which will work as a risk management tool.

With the privatisation of the insurance sector and the entry of 8 new players, the Insurance Regulatory and Development Authority (Irda) proposes to detariff the industry. Plans to detariff the motor insurance business have failed to fructify thrice already.

Irda chairman C S Rao fears that detariffing will result in non-availability of affordable risk cover due to the lack of adequate data to support the actual pricing of products. He cited the example of a 10-year old car for which insurance companies could charge huge premium which may not be affordable for the common man.

"Irda plays the role of a developer as well as a regulator. It is hence concerned that pricing should not go haywire," said the general manager of a leading public sector general insurance company.

Public sector general insurance companies such as New India Assurance Co has started a pilot project to collate the available data to price products better. The country's largest insurer, Life Insurance Corporation of India (LIC), is also in talks with IAI to identify various sickness in different age groups or gender groups.

The state life insurer has taken up the country's largest data-mining project to help it improve customer services and cross-sell products to its huge customer base, said a LIC senior executives.