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The last few years, have been quite eventful for the insurance industry , specially in the otherwise dry non life sector. There was a time when private insurance companies were allowed to enter the field, while General Insurance Company and its counterparts/subsidiaries hailed monopoly in the non life segment. All companies followed the fixed premium rate, the products were undifferentiated and there was limited coverage for every product line.
Despite ample potential, the non-life sector suffered on account of the compulsory tariff sector.
However, it looks like things are about to change. The Insurance Regulatory & Development Authority (Irda) has taken a major decision, which completely unshackles the general insurance industry of all tariff rates. This decision will be put into action from September 2007.
The Tariff Advisory Committee has decided that the rates, terms, conditions and regulations applicable to fire, engineering, motor, workmen's compensation and other classes of business currently under tariffs will be withdrawn soon. The IRDA will regulate them from the next calender year.
Detariffing will bring in a major shift from rule- based underwriting to risk- based decision- making. Mr. C. S. Rao, the head honko of IRDA has reportedly said that the decision of detariffing the general insurance sector will bring in a big change in the focus of insurance companies from corporate business to individuals, resulting into higher insurance penetration in the country.
Pari Oli, President of New India Assurance has told the media that fire insurance is indeed the cream of the business and private sector always concentrated on this product, while avoiding risky business like third party motor insurance. Detariffing will put fire premiums under competitive pressure now.
Kartik Jain, the marketing head of ICICI Lombard says that while normal wisdom would suggest that the tariff is supposed to be at a lowest rate that one can offer, market dynamics, in fear of undergoing business loss, quote a higher price. Complete Detariffing is expected to change this situation for the better.
Detariffing will affect various aspects of non-life business. These can be;
Brokers Benefit: A broker aims at getting you a good policy at a reasonable price. Since these people know a great deal about the insurance scenario, they are far better placed than the insurance company representative trying to sell you a policy. With the tariff policy removed, the brokers will come on their own, as they will be able to design policies as per their need. Niche Plans: Detariffing will boost more segmentation and better quality products in the market. Motor Insurance will directly be affected with the de-tariff impact. Hence several interesting policies will be introduced this year. Retail Products: Presently, retail customers could insure vehicles, assets, health and travel. But a change will be seen, due to the combined effort of insurers and brokers. The market for retail consumer products will widen and brokers see more consumer protection bundled products coming up this year that will give the policyholder greater control of his policy. PSU: Detariffing will help do away with the PSU grip. Insurers , should however avoid unnecessary price cuts and underwrite good businesses. Health Insurance: Group Health insurance premiums were the not so profitable group of health insurance sector. There is an element of cross subsidization in the market. This will disappear with detariffing.An IRDA source has commented that the detariffing will indeed create a more level field. Furthermore, the IRDA will propose clear guidelines to start a Third Party Pool to offer insurance.
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