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.