Irda asks risk firms to rein in discounts

Faced with a stiff price discount war, the Insurance Regulatory and Development Authority (Irda) has asked insurance companies not to lower prices more than 25 per cent for class-rated risks and 35 per cent for individually rated risks.

In a circular to insurance companies last month, the Irda asked them to maintain a list of individually rated risks and the reasons for the discounts provided for those risks.

It specified that insurers cannot provide more than 10 per cent discretionary discount for commercial purposes, which must form part of the 25 per cent and 35 per cent overall discount.

Public sector general insurance companies are competing aggressively with private insurance companies and giving discounts up to 50 per cent in order to regain their lost market share, said industry sources.

Since liberalisation in insurance in 2000 private risk companies have captured around 35 per cent market share from four public sector companies. "We expect the market to remain ultra price-sensitive during March, as major corporations complete their renewals on April 1 and then, we hope that it will stabilise," said Prudent Insurance Brokers VP Pavanjit Singh Dhingra.

The general insurance sector pricing was de-tariffed on January 1 this year. As expected, the market has experienced a steep erosion in price of fire and engineering insurance.

In motor insurance, the price drop has not been as steep because of the adverse losses of third party liability and the rollback of the third party liability price rise owing to pressure by transporters' lobby recently. Companies are required to file base rates for each class of risk and are constrained from charging anything lower than those base rates.

The ongoing war between public and private sector general insurers over pricing is also likely to dominate a CEO-level meeting convened by the Irda tomorrow in Delhi.