The insurance regulator has directed general insurers to withdraw the automatic extension in period clause, which is offered as an add-on with annual policy covers by general insurers, as this violates the rules of All-India Fire Tariff and is non-compliant with guidelines on product filing procedures for general insurance products.
Insurance Regulatory and Development Authority of India (Irdai) has observed that some insurers are offering ‘Automatic Extension of Period Clause’ as an add-on to annual policies such as Standard Fire Special Perils, Industrial All Risks, Office Package, Home Package, Shop Package. The regulator, however, has allowed the existing policies to remain in force, which have been issued under the same clause until their expiry.
An automatic extension period clause allows policyholders to extend the base policy cover by a specified period and the insurer charges a pro-rata premium for that extended period. But the terms, conditions and exclusions for an add-on cover is same as the base cover.
According to Irdai, a base annual policy provides coverage for 365 days and general insurance products with a coverage period of more than a year are specified as long-term products.
Sanjay Datta, chief, underwriting & claims at ICICI Lombard, said, “The proposition is that one should not put in the automatic extension clause upfront as part of the basic policy. The general way that the tariffs are designed, it does not allow these kinds of add-ons in the basic policy. And, this is not going to majorly impact the insurers and the policyholders”.
General insurance products are normally one-year products. So, policyholders have to renew their covers every year and the rates keep changing every year.
According to Kapil Mehta, CEO of Secure Now, an insurance broking firm, “This will not have significant impact on the industry and the policyholders because most people renew on a yearly basis anyway and the number of people who subscribe to such a clause is negligible”.