The pricing of insurance products should be based on appropriate data and technical justification, as per the draft regulations for designing and pricing of general insurance products released by the IRDAI.
Insurance companies will have to take into consideration factors such as risk exposure, claim/loss experience, expenses, reinsurance and solvency requirement. They will also have to factor in a reasonable amount of surplus and economic cost of capital.
With the regulations, IRDAI has attempted to provide the basic framework for designing and pricing of insurance products.
“The IRDAI (General Insurance Products) Regulations, 2021, which will apply to insurance products as well as add-ons, are aimed at promoting efficiency in the conduct of the general insurance business”, said the draft on which the regulator has invited comments from stakeholders by April 26.
The other key highlights of the draft rules include:
- Premium rates can neither be excessive nor inadequate. They cannot be discriminatory to similar risks
- Design of products will have to based on policyholders' interests
- Insurance documents will have to explain the product transparently and clearly
- Products design should be such that it generates profit without any cross subsidisation from any other products
- Insurers should be able to justify the basis if rates are based on non-insurance technical data
- Insurers can alter their products only after taking the approval of the regulator
The regulations, if approved, will apply to all general insurance products and add-ons marketed or offered by general insurers.
"The general insurance package product consisting of various covers/sections including Health section/s shall also be covered by these Regulations in so far as non-health covers/sections are concerned," the proposal said.