The insurance regulator has asked non-life insurers to price their products based on the inputs received from Insurance Information Bureau (IIB).
Miffed by the heavy discounts offered to corporate houses in group policies by few general insurers, IRDA has asked non-life insurers to price their products based on recommendation of Insurance Information Bureau (IIB). IIB has been set up by IRDA to compile and analyze the premium data.
IIB will consider factors like burning cost ratio and past acceptances before reaching a final pricing of non-individual or group policies. This price would be the lowest initial price of any non-life product. Burning cost ratio is a calculation of excess losses divided by total subject premium. This method is commonly used in determining rates for excess of loss reinsurance, or the insurance that insurance companies buy to protect themselves against total claims that exceed their total premiums.
IRDA said, “The burning cost in a particular line of business and segment of risk for industry as a whole as published by IIB from time to time is to be considered. In other words, the industrywide lost (burning) cost must be the starting point of all insurers (existing as well as new) while pricing any product. Burning cost of a particular risk on the company’s own past acceptances, can be considered, for all available periods.”
“Since the burning cost for property risks as published by IIB are, for perils other than natural catastrophes like Standard Fire & Allied Perils (STFI) and earthquake, insurers need to consider adequate pricing for said risks, if offered,” said IRDA.
Initially, these guidelines will be implemented for group policies of fire, property and health insurance.
IRDA has instructed non-life insurance companies to put up an appropriate mechanism to ensure these guidelines are implemented by January 1, 2015.
Incurred claim ratio in fire insurance segment was 67% in FY 2012-13. However, health insurance continued to remain cause of concern for general insurance companies since the segment recorded 96% incurred claim ratio in FY 2012-13 compared to 94% in FY 2011-12, an increase of by 2%. Incurred claim is claims received for the premium paid towards insurance policies in a year; hence, low incurred ratio indicates healthy growth prospects in non-life business.
Experts are of the view that premium rates of group policies are likely to go up sharply.