IRDA’s working committee
has recommended that general insurers be allowed to design niche products which
specifically cater to retail and corporates separately.
After
witnessing a slew of changes in health insurance products, the non-life insurance
industry is set to get an overhaul. IRDA’s working committee has recently put
forth some key suggestions to expedite product approval procedure, allow launch
of innovative products and customize pricing. The objective of the committee is
to simplify products.
Earlier
in April, IRDA had constituted an eight-member working group to review file and
use guidelines in order to simplify and improve products in the general
insurance space. The move was taken after implementation of new product
guidelines in life and health insurance products which has created better
transparency and simplified product structure. A senior official of a mid-sized
general insurance company said, “After implementing new product guidelines
which came into effect from January 1 to make life and health insurance
policies more transparent and customer friendly, IRDA has shifted its focus to
improvement of general insurance product offerings.”
Here
are the key recommendations of the working group.
Unique products: The
working committee has proposed to allow general insurers to launch unique
products to cater to the needs of retail clients as well as corporate clients. “While
the current classification on the basis of ‘how the product is priced’, the
working group recommends a classification on the basis of ‘who buys a product’.
Hence there may be broadly two classes of products, namely retail products that
are primarily designed for retail customers and commercial products for firms,
companies, trusts, associations, societies, government.”
The
committee clarified that commercial customers can buy retail product; however,
not vice-versa.
Easy approvals:
The committee has recommended to channelize commercial products through ‘use
and file’ route. Under this arrangement, the insurers can launch policies
without taking prior approval from the regulator. However, insurers need to inform
IRDA before bringing such products in the market. The product structure, design
and premium would be decided by Product Management Committee (PMC) of insurance
companies. PMC needs to comply with IRDA’s guidelines.
Retail
policies will continue to follow the traditional route of ‘file and use’ to get
regulatory approval. But the silver lining is that these policies can be
launched through ‘pilot’ route. Insurers may launch a product for a short
period of time, say three to six months, in a defined pilot area after
informing IRDA. After further due diligence on the product, they may finalize
the product and take it through the respective approval process.
Minor
modification in products would not require IRDA’s approval. They can be
approved by PMC.
Customizing price: Industry
experts believe that the primary reason behind segregating products (retail and
corporate) is to promote structural pricing in general insurance industry. The
working group recommended that the Appointed Actuary should decide premium
amount based on combined ratio of the product. Combined ratio is a measure of
profitability from a product. A ratio below 100% indicates that the company is
making underwriting profit while a ratio above 100% means that it is paying out
more money in claims that it is receiving from premiums.
Also,
the working committee has suggested IRDA to ask General Insurance Council (GIC)
to benchmark the prices for different products and add on covers.
Simplifying policy wording
Among
its key recommendations, the working group recommended IRDA to constitute
‘India Market Wordings’ in order to simplify and uniform policy wording across
all non-life insurance policies.
Creation of a forum:
The committee has recommended IRDA to create a forum for stakeholders like loss
assessors, motor manufacturers, lawyers, customer groups etc. It said, “GIC has
been playing an effective role in self-regulating the Indian general insurance
industry, but this is a forum of insurers only. However, there is no platform
for other stakeholder of insurance. IRDA may consider creating a forum that has
representatives from all stake holder including insurers.”
In
order to improve the report, the committee has also recommended IRDA to invite
feedback of stakeholders.
In
an earlier such recommendation, IRDA had de-tariffed premium structure under
various segments like fire, engineering, motor OD and workmen compensation in
January 2007.
Source: Team CafeMutual