Motor risk detariffing put on ice

The Insurance Regulatory and Development Authority (Irda) has put detariffing of motor insurance on the backburner. At a time when the insurance regulator is preparing a time-table for detariffing the non-life insurance industry, motor is likely to be the last risk product to be detariffed, contrary to what was expected earlier.

"Motor insurance business will not see detariffing coming quickly," C S Rao, chairman, Irda, said, even as he is keen to free the pricing of most non-life insurance products.

More likely than not, the most profitable portfolio of fire will be detariffed next. Bulk of the insurance business comes from fire and motor insurance, with the latter accounting for as much as 40 per cent.

Today as much as 70 per cent of non-life premium income falls under a tariff regime.

Taking cognition of the recent dilemma facing insurance companies post the detariffing of the marine hull business, Rao said the regulator needs to be careful as to which segment is to be detariffed.

"Insurers need to prepare themselves. I want to come out with a time-table for detariffing the industry which will give time to players to prepare and come out with minimum underwriting guidelines," said Rao.

He further elaborated that considering "marine hull is a reinsurance-driven business, this should not have happened."

When the Irda detariffed marine hull this April, insurance premium rates in this segment fell by as much as 50-60 per cent.

While this augured well for the Indian shipping conglomerates, the insurance players found it difficult to place the risk even with the national reinsurer, the General Insurance Corporation of India (GIC).

This followed many players quoting less than international reinsurance rates, said industry sources.

Meanwhile, detariffing auto insurance has hit a roadblock three times in a row as the insurance industry is insistent that detariffing of the market should also include freeing the price on third-party liability cover.

Today this cover is priced very low, making the business unviable. At the same time, the insurance regulator fears that detariffing of the motor insurance market could result in some individuals not being able to afford the cover.

ULIP norms may have safety feature

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The Insurance Regulatory and Development Authority (Irda) will come out with guidelines on unit-linked insurance plans (ULIPs) after holding consultations with the industry.

C S Rao, chairman, Irda, wishes to bring about some semblance of assurance to policyholders.

"There is a safety feature built into traditional plans under Section 27 (of the Insurance Act) to protect returns for policyholders," he added.

Guidelines on unit-linked insurance plans (ULIPs) will try to ensure safety of insurance returns as has been in-built in the case of traditional insurance policies.

This was stated by Rao here today on the sidelines of Munich Re's seminar on risk management.

Under ULIPs, the investment risk is passed onto policyholders, though a few insurance companies do offer some level of guaranteed returns.

"My concern is on proper disclosure to policyholders since the investment risk has been transferred to the individual. Further, the issue is also related to the actual relationship between the premium collected and the amount of insurance cover granted," said Rao.

Today ULIPs, a risk-cum-investment product, are selling like hot cakes, as the capital markets are booming, and net asset value of most ULIPs is on the rise.