Irdai brings draft rules for general insurers on product design, pricing

The Insurance Regulatory and Development Authority of India (Irdai) on Monday came out with draft guidelines that aim to provide a framework that the insurers need to follow with respect to product design and pricing. The regulator has asked all stakeholders to give their views on the draft guidelines before April 26.

“Guidelines for product filing have been in vogue since 2000 and have been revised from time to time. It has been felt necessary to have regulations governing general insurance products, even while having a provision thereunder for issuance of guidelines for various segments as may be necessary”, the regulator said.

The regulator has classified general insurance products into retail and commercial on the basis of who buys the product and/or on the basis of the sum insured.

When it comes to product development, the regulator has said, the products should be designed in such a manner that takes care of policyholders' interest and affordability but also should cater to their changing needs through evolving risk coverage.

While pricing the products, the insurers should risk exposure, claims experience, expenses, reinsurance, solvency requirements, and factor in a reasonable amount of surplus. Also, insurers may consider the investment return in the pricing based on experience. Even add-ons should be priced in a way that the product and the add-on are viable.

The regulator has said, the large risks should be insured by the insurers at the same rate as that by the reinsurers. But the insurer can charge an additional premium over the rates secured from the international market that is commensurate with the additional risk coverage offered by it.

In the case of add-ons, the insurer said, they cannot change the fundamental nature of the base product. Also, add-on as a standalone product or a separate insurance contract, independent of any purchase of another product is not permitted. And, the aggregate premium of all add ons plus premium under optional covers built into the base product should not exceed one hundred per cent of the premium for the base product.

“The Authority may fix lower than one hundred per cent of base product premium in specific products”, Irdai said.

The insurer has said, all retail category products, standard products, and commercial category products up to a defined sum assured are subject to the “file and use” procedure. When it comes to the “use and file” procedure, all products under the commercial category, all government products, products covering large risks are subjected to “use and file”.