With the advent of free pricing regime for general insurance industry, the Insurance Regulatory and Development Authority ("IRDA") has recently amended its guidelines for `file and use' requirements for general insurance products by necessitating insurers to avoid unscrupulous rate cutting in a de -tariffed regime.
For the purpose of these guidelines, the products have been classified into class-rated products and individual-rated products.
As per the amended guidelines:
Insurance companies are prohibited from altering tariff coverages, terms and conditions of covers that are presently under tariffs till 31st March 2008;
Necessary steps are to be taken by the insurer to ensure that competition will not result in unprincipled rate cutting and other inappropriate underwriting practices;
The product should be a genuine insurance product and alternate risk transfer or financial guarantee business will not be accepted;
The pricing of products should be technically justified and margins built into the rates shall be consistent with the experience of the insurer in respect of commission, management expenses, contingencies and profit;
Unless the insurer has altered/ modified the rates, terms and conditions of cover products which were previously filed under the former ‘file and use" guidelines, such products are not required to be re-filed under the amended guidelines;
The underwriting policy of the insurer shall be placed before the board of directors for their approval and not merely a committee or sub-committee of the board;
Design and rating of products should be on sound underwriting basis;
A minimum of 15 days notice is to be given by the insurer for cancellation of covers.
Further, the IRDA has also stipulated rules of conduct for brokers in respect of insurance and reinsurance of general insurance risks. The placement of reinsurance is entirely within the purview of the insurer and neither the broker nor the client is permitted to direct the insurer where to place reinsurance and as to how much to reinsure.
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