The Hindu Business Line : IRDA for 20 pc cap on motor premium changes

Motor vehicle insurance premium may not vary over 20 per cent annually come January 2007 when free pricing of select insurance products becomes the norm.

This is part of the Insurance Regulatory and Development Authority's plan to fix a ceiling on the pricing changes in a de-tariffed scenario. The General Insurance Council, the self-regulatory body representing the insurers, will submit its view to the regulator shortly.

Currently fire, engineering and motor are under tariff which means that insurers have to follow a pre-determined rate structure. The IRDA has now suggested a 20 per cent (plus and minus) deviation against the current tariff rate. A free pricing or a de-tariffed scenario will come into effect on January 1, 2007 and insurers have been making preparations in terms of data collection and training of underwriters.

Justification needed

Currently, about 70 per cent of the non-life insurance market, which generates premium of around Rs 18,000 crore, is under tariff. Among the tariffed businesses, motor accounts for around 40 per cent.

As per the IRDA's proposal, pricing either above or below the 20 per cent limit must be justified to the regulator.

"While the IRDA has suggested fixing upper and lower limits against the tariffed rate, the proposal is yet to be finalised," said Mr M. Ramadoss, CMD, Oriental Insurance Company.

He also said that while such limits could exist for smaller policies, it would not be feasible for bigger policies, which are reinsurance driven.

A senior IRDA official said the regulator was awaiting suggestions from insurers on the issue. "The regulator will take a decision on the issue once we sift through suggestions from CEOs," said the official.

De-staggering process

Insurers say the IRDA's suggestion is in line with the industry's fear that there might be a `blood-bath' once insurers are allowed to price their own products. They refer to the crashing of premia by over 30 per cent when marine and hull insurance got de-tariffed.

According to an insurance analyst, IRDA proposes to stagger the process of de-tariffing and increase accountability among insurers. This is in tandem with a change in the system of filing products.

"With the change in file-and-use system for new products, insurers will have to be more accountable. They will have to justify the rating as well as underwriting philosophy and present a product plan," the analyst said.

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