Irdai plans to standardise insurance guidelines for houses and shops

The Insurance Regulatory and Development Authority of India (Irdai) is coming out with standard guidelines for products aimed exclusively at units like ‘dwelling houses’ and small commercial establishments.

Currently, there is no standardisation of insurance cover for units like small shops and houses. 

These units, however, can be covered under fire and allied perils insurance, which are mostly aimed at bigger units. 

Irdai is expected to come out with norms in the next few months, said a source close to the development. Standardisation would entail affordable insurance products to help cope with and recover from common risks while adhering to certain levels of cover, premium and benefit standards. 

In the last few years, the need for such standardisation was accentuated by increasing loss of small houses and commercial establishments due to natural calamities.

In May, Irdai had come out with an exposure draft on revisiting the product structure for dwellings, offices, hotels, shops and micro, small and medium enterprises (MSME) against fire and allied perils.

It constituted a working group to look into the specific needs of the segment. The working group made various recommendations, after which it was decided to work on the product design and draw up the proposed policy wordings.

These include the terms and conditions in plain language, keeping the target segments in mind. 

The group also recommended standardisation of products in the segment. It suggested that all perils relevant to a segment be covered in the base product itself to avoid mis-selling.  

Also, the working panel suggested a system of default sum insured for all dwellings. It recommended that the General Insurance (GI) Council or Insurance Information Bureau of India (IIB) create a database of cost of construction for each square feet carpet area for different geographies and construction types. 

The insured will declare only the carpet area and the sum insured of the dwelling will be auto-calculated at the given rate. At present, there are around 91 products offered by registered general insurance companies, targeting low income segment of the population, according to Irdai’s annual report for 2017-18.

Some other recommendations of the group included insurance of houses in multi-storied apartments on the total saleable price of the apartment based on ‘ready reckoner’ rates published by each state government. 

It also recommended restricting tenure of the dwelling structure policies to five years.

It also talked about doing away with upfront discount and providing in-built sum insured auto-escalation at the rate of 10 per cent per annum.

India continues to see one of the lowest insurance penetration rates at 3.69 per cent, according to the annual report by IRDAI. 

The penetration for non-life insurance sector in the country stood at 0.93 per cent in 2017.

Before the abolition of the Tariff Advisory Committee in 2002, there were certain standardised products in the micro insurance space. However, after the abolition, the products went off the shelves due to lack of demand, according to a senior official in a general insurance firm.

Earlier, IRDAI, in order to propagate micro insurance in various segments, expanded the categories of entities or individuals who may be appointed as micro insurance agents.

These include non-government organisations (NGOs), self-help groups (SHGs) and micro-finance institutions (MFIs), among others.

Suggestions

• All perils that can affect a segment should be covered in the base product

• GI Council or IIB likely to create a database of cost

• Tenure of policies up to 5 years

• Call for doing away with upfront discount