As previously reported, the Indian general insurance market
is in the midst of a transition from a tariff based regime to a
more market driven system. To this end, the Indian insurance
market regulator (IRDA) announced in December 2006 that rates
for tariffed products would be freed as of 1 January 2007.
Under the original plan, the Tariff Advisory Committee
mandated policy wordings (insuring clause, terms, conditions,
clauses, warranties, etc) would have to be used until
31st March 2008. After the date, the intention was
for policy wordings to be freed as well.
Following de-tariffication, the first steep premium rises
were seen in third party rates for motor policies. It was
reported that transporters were being asked to pay 126-150%
more for third party cover. Transporters threatened a
nationwide strike and, on 23 January 2007, the IRDA stepped in
to regulate the motor rates that could be charged by Insurers
with retrospective effect from the date that rates were freed -
1 January 2007.
In other market lines, premiums have seen a marked decline.
Firm statistics are very hard to obtain, but market feeling
following the renewal season that coincided with the Indian
financial year end on 31st March is that rates for
middle to larger customers have come under severe pressure due
to a combination of reasons, including Insurers anxious to gain
market share in a new market; brokers aggressively driving down
rates (and their own commissions) to retain clients and
Insureds showing a remarkable willingness to move business to
the lowest bidder. In a tariff market with each Insurer obliged
to sell the same product, the only differential that an Insured
will focus on and negotiate is price, and that is what has
As mentioned earlier, 31st March 2008 was to have
been when the policy wordings would also be de-tariffed.
However, the IRDA has announced that it is pushing back this
date. In a letter dated 26th March 2008 to all
General Insurers, the IRDA decided that pending examination of
common market wordings proposed by General Insurance Council,
Insurers shall continue to use the coverage, terms &
conditions, wordings, warranties, clauses and endorsements of
the erstwhile tariff classes of insurance covers until further
There was a view amongst some that the General Insurance
Council (GIC) common wording contradicted the desire for a
de-tariffed market, and was not needed at all. Others felt
that, if there was a need for a common wording, then the market
should continue with the tariff wording which is at least
A third group expressed the view that a common wording
should not be rushed. It appears that the IRDA shares that
view. The issue remains, however, that the market will be
following the tariff wordings for now for an indeterminate
period. The IRDA has given no other explanation for the
postponement of de-tariffication beyond that quoted above, and
no indication of how long the review of the GIC wording will
One of the unintended effects of partial de-tariffication,
leaving the policy wordings fixed but allowing free pricing,
seems to be the pressure on premiums that has characterised
this latest renewal season. It will be interesting to see what
the effect will be if partial de-tariffication continues
through another renewal season.
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