Use-and-file may soon be permitted for general insurance products

Officials say the regulator has accepted most parts of working group report

The Insurance Regulatory and Development Authority of India (Irdai) may allow general insurance companies to implement the use-and-file method to get products into the market.

This will be the first step to implement the working group report on File-and-Use (F&U) guidelines. This would mean customers would get products quicker, which could then be tweaked based on feedback.

Industry officials said that the regulator has accepted major portions of the working group report that was submitted to it. The report had suggested that insurers can launch pilot products "for a short period of time in a defined pilot area with defined exposure limits on a pilot basis, after informing Irdai."

"The regulator has given a go-ahead and would start implementing suggestions of the report soon. We have also sought permission for getting approval for a product after gaining experience and later finalising it," said a general insurance official associated with the group.

Under the existing file-and-use system, all products should be filed with Irdai before these can be used.

If use-and-file comes into play, a product is first launched in the market and then a declaration is sent to the regulator giving out finer details of the product and its pricing. With the group suggesting pilot products, only after customer feedback is collected and features finalised will details will be sent to the Authority.

The working group report has said that developing innovative products requires experimentation, testing, refinement and finalisation. However, the current system does not afford the freedom of testing and refinement; it jumps from experimentation to finalisation, the report adds.

While setting up the working group to review the file-and-use norms for the general insurance sector in April 2014, Irdai had said a review of the extant guidelines would be undertaken.

Since the current classification is based on 'how the product is priced', the working group has recommended a classification on the basis of 'who buys a product'.

In order to respond to customer requirements faster, insurers have been demanding a use-and-file system for certain products to co-exist with the file-and-use system. 

Keeping in mind the average consumer is not fluent in the complexities of insurance, the working group has suggested there be just two classes of products - retail and commercial. The former is meant for retail customers and the latter for customers other than individuals (companies, trusts, associations, societies, government entities, etc).

According to the report, pricing flexibility has been a vexed issue between the insurers and Irdai. The working group has recommended that pricing flexibility be allowed by the Appointed Actuary to the extent of acquisition cost and profit margin built in the product, subject to Irdai approval. There would be an overriding condition that the combined ratio of the product should remain below 100%.