The Hindu : Business : Detariffing in general insurance notified

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Thursday, Dec 07, 2006
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Detariffing in general insurance notified

Special Correspondent

To take effect from Jan.1; IRDA to regulate other terms

MUMBAI: The Insurance Regulatory and Development Authority (IRDA) has announced that insurance companies are free to fix premium from January 1, 2007, for fire, engineering, motor, workmen's compensation and other classes of business currently under tariffs, subject to the guidelines on `File and Use' of General Insurance Products stipulated by the Authority.

However, the Tariff general regulations, terms and conditions and wordings applicable to these lines would remain "until further orders".

The Tariff Advisory Committee decided, last Monday, that the rates, terms, conditions and regulations applicable to fire, engineering, motor, workmen's compensation and other classes of business currently under tariffs shall be withdrawn effective from January 1, 2007. Consequently, these would be now regulated by the IRDA from next calendar year."

In his circular dated December 4 and released on Wednesday (December 6), C. S. Rao, Chairman, IRDA, said: "By virtue of the power vested in the Authority under Sec. 14(2)(i) of the IRDA Act, 1999, it is hereby notified that the Tariff general regulations (other than those relating to rating), terms, conditions, clauses, warranties, policy and endorsement wordings applicable to the above mentioned classes of business [fire, engineering, motor, workmen's compensation and other classes of business currently under tariffs] as well as Marine Hull insurance business shall continue to be followed until further orders. The rates of premium may be varied subject to compliance with the Guidelines on `File and Use' of General Insurance Products notified on September 28, 2006."

However, the rates of premium applicable to Motor Third Party insurance business have been set out by IRDA. "Insurers are advised to be mindful of the concerns expressed by vehicle owners about both the rates and availability of insurance. Considering the mandatory nature of Motor Third Party insurance, insurers are advised to ensure that Motor Third Party insurance is made available at all their underwriting branches and that requests for insurance are processed expeditiously and policies are issued promptly."

In respect of all classes of business where the rates applicable are now controlled by tariff, insurers are not permitted to cancel the current insurance policies and issue fresh policies covering substantially the same properties or interests, in order to alter the rates of premium. The insured is free to cancel its insurance at any time as per the relevant policy conditions in which case, premium at short-period rates as applicable shall be charged for the period on risk.

Our Chennai Correspondent writes:

Will create level field

Detariffing will give a much-sought-after level playing field for the public sector in the insurance industry, according to leaders of officers' associations. "All along, the private sector in the industry had greater flexibility in quoting premiums because of certain practices like commissions and incentives. Detariffing will enable the public sector companies to quote competitive rates", J. Cyril, President of the Oriental Insurance Company Officers' Association and former secretary-general of the confederation of insurance officers' associations, told The Hindu.

Par Oli, President of the New India Assurance Officers' Association, said fire insurance was the "cream" of the business and the private sector tended to concentrate on this product, while avoiding riskier lines, like third party motor insurance.

With detariffing, fire premiums would come under competitive pressure.

Public sector companies should discontinue cross-subsiding other products with the premium from fire insurance, and the private sector would be forced to increase its offering in other product lines. "We are happy with the detariffing, which creates a level field", he said, adding, that the IRDA should come out early with clear guidelines on the proposal to start a Third Party Pool to offer the insurance.

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