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A new era in non-life insurance

Major, long overdue changes are on the anvil in the non-life insurance business segment, comprising fire, marine, and miscellaneous insurance products. The Insurance Regulatory Authority of India (IRDA) has issued draft guidelines that would, from September 30, be applicable to all general insurance products and services, existing as well as new ones. The guidelines would make for greater professionalism and improve the working of the insurance companies, with the accent on self-regulation. The purpose of the new "file and use" guidelines is to enable the insurers, rather than an outside authority, to determine the contours of their products especially the premium, subject of course to certain well-recognised principles. At present, the Tariff Advisory Committee lays down the rates for many risks. Despite some sectors such as marine insurance coming out of the tariff regime, as much as 70 per cent of the industry turnover is still under regulation.

As a rule, the tariff regime sets the floor, the minimum that the companies can charge, rather than the ceiling. Under the new guidelines, insurers will have to not only justify their pricing on the basis of appropriate data but also ensure that competition does not lead to "unprincipled rate cutting and other improper underwriting practices." All-round transparency is sought to be achieved by requiring that every company appoint a compliance officer and involve a certified actuary right from the early stages of designing the product. For a better understanding of the risks and to enhance the level of its supervision, the IRDA has classified insurance under five heads with their own ground rules for risk assessment. It is expected that, under the new regime, premium for motor vehicles, especially trucks and other heavy vehicles that carry a relatively low rate, may go up. Third party risks, the claims made by a person against a policyholder of another company, are at present compulsorily insured in India and courts have brought in the concept of unlimited liability. Previous attempts at increasing the insurance premium for motor vehicles were resisted by the politically influential truckers. With a new, transparent and rule-based regime, the insurers may be able to make a more convincing case.

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