Until very recently, the IRDAI's Guidelines on "File and Use" Requirements for General Insurance Products of 28th September 2006 governed the procedures and processes for introducing, modifying and withdrawing general insurance products. As a matter of law and practice, proposed products were required to be filed with the IRDAI in the specified manner and once the approval of the IRDAI was obtained, the product could be distributed.
The procedures and processes have now significantly changed with the introduction of the IRDAI's Guidelines on "Product Filing Procedures for General Insurance Products" ("Revised Guidelines") which were introduced on 18th February 2016 following an exposure draft of the guidelines issued by the IRDAI for comments a couple of months earlier. The Revised Guidelines come into force on 1st April 2016 and will, therefore, apply to all new general insurance products filed on or after 1st April 2016.
The Revised Guidelines apply to all general insurance products except health, personal accident and travel insurance products which are governed by the IRDA (Health Insurance) Regulations 2013 and the accompanying guidelines. In terms of products which are governed by the wordings of the erstwhile Tariff Advisory Committee, the Revised Guidelines make it clear that those standard wordings shall continue to apply and the tariff wordings shall not be abridged beyond the options specifically permitted.
Per the Revised Guidelines, all general insurance products are meant to be classified as "retail products" or "commercial products" where, broadly, retail products are those issued to individual customers (and their families) and commercial products are those issued to entities other than individuals such as firms, companies or trusts.
The Revised Guidelines do not require products approved under the previous File & Use Guidelines to be re-filed, but if Insurers wish to continue offering those products, they will need to classify those products as "retail products" or "commercial products" and file a list of those products (duly certified by the CEO and Appointed Actuary) with the IRDAI within 60 days of the issuance of the Revised Guidelines. Insurers may also choose to withdraw any of their existing products by following the procedure set out in the Revised Guidelines.
The Revised Guidelines set out detailed "guiding principles" for product design and rating which include the following:
- The product should be a genuine insurance product covering an insurable risk with a real risk transfer;
- All products should go through "appropriate due diligence" to ensure compliance with the regulations;
- Products should be fair and non-discriminatory to all stakeholders and should take care of the policyholders' reasonable expectations. Insurance product design should ensure "transparency and clarity in wordings, terms, coverage, exclusions and conditions in order to devise a fair and balanced risk transfer mechanism through insurance".
- Products must be need-based so that "unnecessary and superfluous coverage are not added and the necessary ones are not excluded".
- All product literature is meant to be in simple language and technical terminology should be sufficiently clarified such that it can be understood by laymen.
- If Insurers intend to introduce products used in foreign jurisdictions, then those products must be examined and modified in terms of the local regulatory requirements and Indian policyholder requirements.
- Insurers are required to use similar wordings across products for describing the same cover or similar requirements (such as clauses on renewal, basis of insurance, due diligence, cancellation, arbitration and claims reporting).
In terms of procedures for introducing products, the Revised Guidelines specify that:
- Retail products are to be filed under the File & Use procedure set out under the Revised Guidelines. Broadly, the Insurer cannot market the product unless the IRDAI has confirmed in writing that the contents of the product have been noted and a Unique Identification Number (UIN) has been allotted for the product. The File & Use procedure appears to be aimed at being time-bound.
- Commercial products are to be filed under the Use & File procedure set out under the Revised Guidelines. This procedure is meant to be "self governing process" where the Insurer's Product Management Committee (PMC) will play a pivotal role. Broadly, the once the product is scrutinised, reviewed and recommended by the PMC (without any exceptions to the Insurer's Board approved underwriting policy) and accepted by the Insurers, the product documents will be uploaded on the IRDAI's website and a UIN will be allotted. The Insurer can market the product thereafter. The Revised Guidelines make it clear that the IRDAI may check the documentation in detail and if it finds that the product is not in the interests of the policyholders or in conformance with the regulations, it may direct for the product to be suspended, withdrawn or even filed under the File & Use procedure.
One of the most significant changes introduced by the Revised Guidelines is the role of the PMC. All Insurers are required to form a PMC which shall include "high level officers" of the Insurer and perhaps including the Appointed Actuary, Chief Underwriting Officer, Chief Financial Officer, Chief Marketing Officer, Chief Risk Officer, Compliance Officer and Head Reinsurance. The PMC is required to act as a "self governing body" to ensure "quality product design, filing with complete compliance of the regulatory requirements and performance review". The Revised Guidelines make it clear that the CEO of the Insurer shall have overall responsibility to ensure that a robust due diligence process is in place to "mitigate risks of new and current products". Further, as a part of "good corporate governance", the Board of Directors have the responsibility to oversee the activities of the PMC.
One other significant change is the revised requirements pertaining to the lawyer's certification of the terms and conditions in each product. The Revised Guidelines provide that the lawyers certificate (Form D) for each product must be signed by a lawyer domiciled in India who is: (a) employed by the Insurer and has at least 3 years of experience in the Indian insurance/legal service and is entrusted with the sole/main responsibility of developing insurance products; OR (b) a lawyer of a reputed law firm or an independent practitioner, having at least 3 years of experience in the Indian insurance/legal service and "well versed with insurance policy wordings". However, after 3 years from the issuance of the Revised Guidelines, the Form D for all products is to be provided by an employee of the Insurer that fulfils the requirements of the Revised Guidelines.
Press reports indicate that the time-bound File & Use Procedure and the "self-regulated" Use & File Procedure have been received positively within the industry. The Revised Guidelines are, definitely a significant step towards a self regulated regime where Insurers will be required to carry out their own internal due diligence and certification with significantly increased responsibility on the management of the Insurer.
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