Product wording de-tariffing demand on back burner

With heavy discounts affecting fire and group health, freeing wordings may only worsen situation, say industry officials

Product wording de-tariffing that had been sought by the insurance industry is now on the back burner. Industry officials said that with heavy discounts affecting segments like fire and group health, there is an apprehension that freeing the wordings will only worsen the situation.

De-tariffing in rates has been existent in the industry for several years now. There is only an exception of motor third party where pricing is regulated by the insurance regulator and is revised on a yearly basis.

At present, file and use is now being used by the industry to get products filed and approved first before it is sent to the market for sales. A senior general insurance executive said that the focus has now shifted from demand for freeing the wordings in general insurance to other aspects.

The regulator has envisaged a regime where after de-tariffing of pricing from January 2007, there would be a gradual tariff-free regime with respect to the terms and conditions, and wordings. This was also advocated strongly by general insurance companies.

Now, with heavy discounts some insurers are offering 20-30 per cent discounts for corporates during policy renewals even when they have faced a significant claim in the past. It said that, in its guidelines on pricing of risk, industry-wise loss cost must be the starting point and should be considered for pricing a product. Burning costs must be looked into.

Burning cost is the estimated cost of claims in the forthcoming insurance period, calculated from previous years’ experience adjusted for changes in the numbers insured, the nature of cover and rate of medical inflation.

This is a ratio used by insurers to protect themselves from larger claims that exceed premiums paid.

“Unsustainable prices are eroding the balance sheet of large players in the industry. We have to fix this issue first before looking at freeing the wordings, which will only increase more such unhealthy practices,” said the head of underwriting at a private general insurer.