This story is from November 8, 2007

Insurance premiums to dip

Arti Sharma / TNN / Nov 8, 2007, 00:01 IST

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Over the next couple of weeks, some general insurance products are set to see the premiums attached to them come down by as much as 30-40%.

MUMBAI: There’s some good news for people in the market looking for insurance products. Over the next couple of weeks, some general insurance products are set to see the premiums attached to them come down by as much as 30-40%. For retail customers these include motor (excluding third party) and householders insurance; and for companies fire and engineering insurance will be cheaper.
This is because IRDA, the regulatory body, has decided to lift a cap on discounts general insurance companies can offer.The move will come into effect around November 15.
On January 1, 2007, IRDA had moved these companies out of a regime where the pricing of their products was controlled into a free, detariffed regime. Subsequent to this move, steep undercutting in prices of various insurance products compelled IRDA to move in again and put a cap of 51% on the discounts a general insurance company could offer its customers.
The regulator followed this up by asking companies offering certain products to file documents with the regulator explaining their pricing policies. This was to ensure the regulator is satisfied that proper underwriting procedures are being followed.

Sources say, Irda is satisfied with the filings made by the various companies. CS Rao, chairman, Irda, had told TOI that he is confident that players will behave responsibly when it comes to pricing their products.
Some exceptions can be expected. In health insurance, post detariffing, premiums have gone up significantly. This was largely a function of cross subsidisation. For instance, when an insurance company offered a corporate client a fire insurance product, the corporate would often demand a health cover for its employees at a subsidised price. Insurance companies would make up for this subsidy with the premiums they charged on fire.

But after detariffing, with everybody cutting prices and the claims on health being high, it was becoming unviable for insurance companies to continue offering cheap health products. It left them with only one option__hike the prices of health insurance. That, it seems, will remain unchanged.
Sources added some more changes can be expected in the insurance business, the impact of which will be felt by consumers eventually. Until now, when you buy a fire insurance product, what constitues the product and the terms and conditions under which it is offered, is defined by a government appointed body.
In a detariffed regime though, companies ought to have the freedom to define the products and the terms and conditions under which it is offered. Irda, however, reckons that an environment like this holds the potential to create confusion in the minds of customers on what exactly constitutes a particular product.
The body has, therefore, asked insurance companies to arrive at a consensus and accept a common definition for the products on offer. Once this consensus is in place, the potential for confusion will be eliminated.

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