Insurers get full pricing freedom

IRDA removes 20% band on premiums.

The Insurance Regulatory Development Authority of India (IRDA) has done away with the original plan of keeping a 20-per-cent band on premiums in the detariff regime set to kick off in January 2007.

This means that insurance companies will be completely free to price their products from next year.

However, the rider is that the insurers will not be allowed to change the terms and conditions for existing products within 15 months of detariffing.

Speaking to Business Standard from Hyderabad, IRDA Chairman CS Rao said: "We are relaxing the pricing norm, but the terms and conditions can't be changed. This is being done to avoid confusion at the initial stage."

In its first-draft guidelines, the IRDA had said that even though price controls would be removed from existing products from January 2007, insurers would not have the freedom to raise or cut premiums by more than 20 per cent of the existing price. "We have dropped this suggestion in the final draft," he said.

The final draft on "file and use" requirements for general insurance products in the detariff regime says, "insurers shall not vary the scope of coverage, or terms and conditions of cover, or the wordings in respect of covers that are currently regulated by tariffs in respect of products sold until March 31, 2008. Insurers may file in due course their proposal for changes in cover, or wordings for products, to be sold after March 31, 2008."

At present, about 70 per cent of the general insurance industry, generating around Rs 18,000 crore as premium, is under the tariff regime.

The portfolios under tariff are fire, engineering, and motor. While detariffing for fire and engineering will take place in January, a decision on detariffing of the motor portfolio may be considered at a later stage.

According to a senior official of a leading insurance company, confusion would be caused if insurance firms were allowed to change the scope of the coverage, along with pricing.

"The market should not be opened at one go. If all restrictions are removed at one go, some players may misuse the freedom and dupe unsuspecting customers. The conditions are being frozen to ensure a calibrated approach to detariffing," he said.