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IIB's rates to ensure profitability of insurers!
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SME Times News Bureau | 13 Sep, 2021
Is the Indian insurance industry and more particularly the non-life
sector moving towards administered price regime -- wonder industry
experts citing the draft Insurance Regulatory and Development Authority
of India (Insurance Information Bureau of India) Regulations 2021.
Two
decades after the insurance sector has been opened up and with over 30
players in the sector, the industry seems to be moving back towards an
administered pricing regime in an indirect manner facilitated through
the proposed regulation.
As per the draft regulations, put out by
Insurance Regulatory and Development Authority of India (IRDAI) one of
the objectives of Insurance Information Bureau of India (IIB) is: "To
generate benchmark rates for different Lines of Insurance Business
including Life, Motor, Health, Marine, Fire and others on a periodic
basis for promoting reasonableness and sustainability of Premiums in
Insurance Business."
The draft regulation mandates
life/non-life/reinsurers and other entities regulated by IRDAI to share
the data in required format with IIB so that it can come out with the
benchmark rates.
According to IRDAI, the draft regulations were
made in consultation with the Insurance Advisory Committee (IAC) whose
members are majorly from the insurance industry players.
The IIB is a society registered in Andhra Pradesh.
At
a time when non-life insurers are demanding that IRDAI allow them to
fix the motor third party insurance premium, the regulator has come up
with the proposal of IIB fixing the benchmark rates for all kinds of
insurance.
"One shouldn't have a minimum price regime in a free
market economy," a senior official of a private non-insurer told IANS
preferring anonymity.
"I am for the deregulation of the third
party premium rates, " Varun Dua, Managing Director and CEO, Acko
General Insurance Limited, had told IANS.
Like him, many CEOs, when asked by IANS agree for deregulation of premium rates but strangely that is not happening.
However,
M.N. Sarma, Secretary General, General Insurance Council refutes the
notion that the IIB's proposed benchmark rates are binding on insurers
like the rates of the erstwhile Tariff Advisory Committee (TAC).
"It
is not going back to the tariff regime. The IIB's rates will be only
guiding rates. It is for the individual insurers to follow or not,"
Sarma told IANS.
However, IRDAI can nudge the insurers to follow
the IIB's benchmark rates as it did in the past with regard to fire
insurance business.
Couple of years back, General Insurance
Corporation of India (GIC), a reinsurer decided to accept reinsurance
placement only if their clients belonging to certain industries are
charged a premium rate on 'burning cost' basis as arrived by the IIB.
Simply put, the burning cost rate is arrived at by dividing claims paid by sum insured.
The GIC's move in effect has forced the primary insurers to increase their rates several folds, in some cases by nine times.
Fire insurance premium rate crashed soon after the insurance regulator abolished the administered pricing mechanism.
The
insurance regulator too advised the insurers a) either adopt 'Burning
Cost rate' published by IIB or b) adopt their own internal Burning
Costs, if any or c) in case of deviations from both, report to their
Board of such exceptions and periodically inform Board reactions to the
Regulator.
Justifying the benchmark rates when asked -- should
not insurers fix the rates based on their claims experience, Sarma said:
"World over insurance regulators want the sector's stability. The
benchmark rates will be a proper rate and not an exploitative one. It is
like the RBI bringing sanity in the banking sector."
"Insurance
should be run safely. Other companies may take risks to run their
business. But a failure of an insurer will have an all round economic
impact," Sarma argued.
"If benchmark rates are based on
authenticated and verified data, they will be fair rates. They can hurt
the customers if they are based on exaggerated claims data. Perhaps an
Insurer who wishes to charge less than the benchmark rates may have to
provide actuarial justification while filing the rates," K K Srinivasan,
former Member (Non-Life), IRDAI told IANS.
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