New norms for general insurers

Chennai: Indian general insurers will be following new provisioning norms from the next fiscal. The new norms are being finalised after consulting the insurers by a committee formed for this purpose. It is learnt that the committee will soon submit its report to the Insurance Regulatory and Development Authority (IRDA).

According to an industry official, under the proposed norms, reserves for unexpired risks will be made on a basis of 1/365. As a result, at the time of underwriting a risk it will be known what part of the premium to be accounted as premium earned for that year and what portion will have to be set aside as provision.

All these years, provisioning for unexpired risks were made on a fixed percentage basis based on the kind of risk underwritten in their respective revenue accounts. For instance, in the case of fire and miscellaneous revenue accounts, 50 per cent of the premium earned is reserved against unexpired risks and 100 per cent in respect of marine hull and transit insurances. Such provisioning on a fixed percentage basis without considering the actual period of risk is considered as unscientific and hence the new norms.

This apart, the other norm that is being considered by the regulator is showing a part of the investment income in revenue accounts. Currently, the entire investment income is reflected in the profit-and-loss account.