Is insurance detariffing headed towards a dead end?

Venkatachari Jagannath
15 November 2005

Chennai: Administered prices in a liberalised market? Though it may sounds like an oxymoron, that is what is in existence in the domestic non-life insurance sector. In insurance parlance, administered prices are called tariff rates and free rates are called non-tariff rates.

The two most important business portfolios that fall under administered pricing are fire and motor. While fire portfolio rakes in profits for the insurers, motor insurance is a loss making proposition. Today, underwriting profit and motor insurance are again a contradiction.

The Insurance Regulatory and Development Authority (IRDA) has now charted out the roadmap for a free rate regime, excluding the motor portfolio. While the fire and engineering businesses are to be freed, according to IRDA, the motor insurance is kept out as it is the major revenue earner for the insurers and has a large base of policyholders. What has been left unsaid is that IRDA would like to tread carefully as it has to face the powerful trucker lobby.

The other major lines of business like health, burglary, transit are outside the tariff. As a matter of fact, insurers offer transit and burglary nearly free to get the fire insurance business. These days corporates demand a free health insurance cover for their employees, another claim prone business, in exchange for taking out a fire insurance.

IRDA's roadmap stipulates that December 31, 2006, will be the last day for administered price regime. To ensure this, the roadmap stipulates that insurers have to isolate the underwriting department from the influence of business development. The underwriters are barred from reporting to a person who is entrusted with the business procurement function but only to those whose performance is measured by underwriting results. The regulator has also said that the CEO should comment on the claims to the company's board along with all business development reports.